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those two movies are so freaking good yeah， its so shocking how good Maverick is so many years later in such a different environment and then like delayed due to coronavirus well！
the funny thing is what it was delayed for whatever years during coronavirus， the fighter that maverc is in is an faeiteenhornet， the Boeing plane and by the time， the moviegets released its basically discontinued within a couple years thats when they end of life the fa teenhernet for the navy yeah， did you catch the lockied thing in maverc the scunk of the tail of the plane oh yeah on the mock ten dark star aircraft mock！
ten dark star！
oh， yeah， alright！
lets do it all right！
lets do this who got the truth is you is you who got the truth now isyyouisyyouisyyouseetdown welcome to season 12 episode 5 of acquiredthepodcast about great technology companies and the stories and playbooks behind them im Ben Gilbert！
im David Rosnfall！
and we are your hosts todays episode is on a critical piece of American infrastructure Lockheed Martin they are the nationslargest defense contractor there actually， the federal governments largest contractor period the American tax payers pay lockid Martin around 50 billion dollars a year and just a state this earlyand clearly， locked Martin makes among other things killing machines the companies of course， critical to defending the American way of life and most of these things they make fortunately are used as detorants to keep peace but we should not mentswords they make weapons synoms with phrases like overwhelming force and air superiority you may feel and probably should feel conflicted as you learn about this company there are really no easy answers to the question is what they make right or good and thats why we entrust the decision to use their products to the office of the president of the United States but this company history is absolutely fascinating stories of hardcore engineering， daring innovators。
and its frankly just inspiring yeah going back and learning all this and soaking in the history of the times when Lockheed was really forged， gave me at least a whole new perspective on this killing machines and detorents question to tell the full story of lockid and lockied Martin and all the predecessor companies they came before it because i think its like 17 companies all merged together at this point would probably require a full season of acquiredso were not going to do that instead were going to focus on two interwoven stories from lockied not Martin， but lockids goldeneers the first of those stories is the famous scunk works the second one im not going to say what it is so we dont spoil it just yet but as a teaser its unbelievable and is directly tied in to the birth of Silicon valley so if youre in the tech world， then you think lockied Martin and defense said fighter planes doesnapply to me think again because pretty much everything you do came out of this so i cant wait to tell it oh quite the teaserdavid well listeners this episode was selected by acquiredlps so if you want to help pick an episode for next season。
you can become a acquiredlimited partner come closer to the show in other ways including a private zoom call with us every month or two for all the lps you can join anytime adequiredoifemslashlp if you want more from David and i you should check out our interviewshow ACK2 our last episode was on the topic of how generative ai can be valuable specifically to be to be SaaS companies and probably more importantly where it can not and listers you can just search ack to anywhere podcasts are found wegot some awesome interviews coming up to ack two is on fire yep join the slack acquiredatafm slash slack will be discussing this episode there afterwards i without further ADO David takeus it and listeners as always the show is not investment vised David and i may have investments in the companies we discuss and the show is for informational an entertainment purposes only so for many of you listening one thing you may not know that i didnreally know till we started the research is that the company that eventually became lucky Martin today was two companies it was locked and Martin Marietta and there was a huge merger in 195 lockied was actually the second blockied company are really maybe the third the first locked company was founded in 120 by one Alan lockead but if you were to look at the spelling of his name。
it would look like a loghead L O U G H E a D yes， but it was pronounce lockied because discuss Lockheed not loghead he eventually changed his name to lockied and the name of the second company to locked to avoid mispronounciations。
which is great he didnt just rename Lockheed the company hes like yeah， im actually gonna change my own name spelling to match it yes！
so good so he started the first company with his brothermalcom， and they were more or less contemporaries of the rightbrothers it was based in San Francisco of all places and it was mostly kind of a tourist attraction they had one plane they had modelg and they flew tourists around over the baid evangelized this new flying technology it had a bunch upsent down smalcom leaves the company and goes to Detroit to seek his fortune in the automobile industry where he invented the modern hytrolic brake system for automobile so every time you press the brake in your cars youusing malcom lockids technology no way yeah， super cool they also end up hiring into this first lucky company one John northgrap yeah， they might ring some bells to help them design their feature airplans John would go on to be a co founder with Alan of the second Lockheed company then leave the strikeout on his own where he founded the avion corporation they get required by Duglas and becomes a big part of Douglas Douglas of course， is now part of bowing and then after that John as you might imagine founded you guessed it northoup， which is now northern Gremin so this onedued is responsible for foundingor playing a major role in threeof the remaining five defense primecontractors today， but anyway， the first locked company goes under they start the second one a few years later， theyhavesomesuccess with the Vega airplane people might be familiar with that it becomes a favorite of Amillia airheart and wilypost famous earlyiviators it becomes successful this second lucky company they end up selling it to a concern of Detroit auto mogules may be through the relationships from Malcolm or something that have formed the quotan quota Detroit aircraft corporation or the dac this is including Charles kettering the founder of Delco and head of researchadgm is part of this you may know memorial slowen kettering exactly same dude so the idea was they were gonna build the general motors of the air there is just one problem with that is that aviation did not become a consumered industry like the automobile industry Alan lack he departs at this point in time in is canatangentially involved， but this company that to this day bears his name after this point time he doesnt really have a lot of impact on now shortly after this may be hairbrained gm of the airidea comes together and lucky get sold to the Detroit aircraft corporation the stock market crash of 129 in the great depression happens and ac predictively goes bankruft they sell off the lockid division。
which is actually still fairly profitable out of bangerbc to an entermaterial young businessman named Robert and this is really the founding of the modern lockid and the crazest thing this price that he bought it for 40 dollars was so low that Alan lockied actually considered bidding to buy his company back when they had it on the auction block and his considered bid was fifty thousand dollars。
but he thought that is so low that it might be insulting theres no way they never sell it so he didnt actually bid and the winningbid was ten thousand dollars less so basic would everything you know of lucky today got bought out a bankrupsy for forty thousand dollars its crazy so under Robert gross and his brothercourtland who gets involved they releaered the ones who turnlockied into the great company it became so beforeworld were two during the thirties lockied builds the famous electra airplane， which is absolutely iconic this is the plane that Amelia airheart disappears in perhaps even more timelessly， this is the plane at the very very famous scene at the end of the movie caseblanca when rickputtilsa on the plane with Victor to escape the naxiss and says heres looking at you kid that plane is an electric i believe an electridjunior and listeners you know this plane its one of those romantic earlyaircrafs that were always sort of purchased up at an angle where if you saw， it standing still on a runway it looked like it could just take off at any moment ah absolutely beautiful the electra and caseof like a brings us to the first core part of our story， which is World War two， which transforms， everything and a man named Clarence Kelly Johnson who started the famous Lockheed skunkworks division。
and this is great because before i started the research， i was loosely aware that lockied had the first skunk works now its become almost like cleanexe when someone says conquirks oh were gonna start a whole skunkworks division and like it was not a thing until Kelly Johnson started these skunkworks so theres a wonderful book there are bunch a wonderfulbooks around lockied。
but a booktitled skunkworks there was written by Ben rich who was kellyesseconingcommand for a longtime at skunk works and then took it over when Kelly retired and this book is like the top gun of historical auto biografees you read a and you were just fired off it is amazing what these people did its top gun for engineers？
yes， its so good i also highly recommend a book called beyond the horizons， which is hard to find a most people dont know about bywalter boy， and then is an amazing history of lucky during all these areas that were gonna talk about David， thats so mean youre recommending an out of printbook to people we keep doing this uh this one i think i only paid like 40 box for on Amazon， so its not quite like tasted Luxury and lvmh， which i think thats now like three four five thousand dollars oh！
yeah， no！
we definitely spiked the price so we did Alright so whois this Kelly Johnson hes basically the Cigaro miumoto of airplane design his nickname is Kelly because when he was in grade school growing up in Michigan， an older boy called him Clara on the schoolyard and Johnson attacked him so viciously that he broke this kids leg edso after that all of his schoolmates never call them clearance or clary again and they nicknamed him Kelly OK so not Clara but why Kelly？
there are some character of Kelly kind of an Irish tough guy that they named him after eh that really was his personality so after every skunkworks testflate for the rest of his tenyear running skunk works they throw a big party Kelly would challenge anyone all commerceto an arm restling match and even when he was like sixty years old he was still beadingpeople。
you should Google a picture of this dude he is just a nineteen thirtysemansman at his finest and maybe the best airplane designer ever to live that is， Kelli Johnson and when you hear the stories about him。
he could into it the answer to difficult math problems in his head and not just math problems but like physics problems and applying bernewlease principle inhishead and come up with an answer that was five percent off from the actual answer and someone else would go spend hours and hours and hours with pencils in paper and slide role to come to basically the same number the quote from his first boss lockeads chief engineer at the time Kelly would become the chief engineer but is boss at the time hall hibrared would say that guy can see the air so Kelly ends up winning the callier Trophy twice one of only two people to do so in history the callier Trophy is the equiflent of like the Oscar for best picture its the best airplane design of the air he wins it twice he ends up being bestowed the presidential metal of freedom by Winton Johnson leader in his career he is a true American hero so he ends up joining lockied right out of the university of Michigan engineering school im sorry university Michigan you know oh high stay then in 1 九三三 at 23 years old and Kelly is really one of the ifnotdeep principal engineer that designsinbuilds the electra so he becomes the star of lockids then only six person aviation design and engineering department there were six people that were making these things crazy and he does basically everything himself engineering designing testing even flight testing theres this amazing quote in scunk works thisisbenrichtalking Kelly once said that unless he had the hellscared out of him at least once a year in a cockpit he wouldnt have the proper perspective to design airplans so good OK， so the start of world were two rolls around and the first thing that kellien lucky do is they adapt the electra into a bombing vehicle called the Hudson anyvenbeforetheusenters the war the British Royal air force ends up buying about 3 of these hudsons from lockid yeah！
this is a thing that was i opiting to me doing the research lockids， big customer and World War two beforetheus enters was brittance Royal air force they were a way bigger customer than the us was for many many years。
so then once the us enters the war and as theyre gearing up to enter the war Kelly designsthe amazingp 38 Lightning fighter， which was the uss elite fastest most maneuverable aircraft during World War two they made over ten thousand of them during the war and all of the top aces in the us army are core flew them it was the plane that shot down the transport that was carrying Japanese admiral yammoto the guy who had kind of mastermind it and overseen the pearl harbor attack this is a legendary airplate in side note i will say last week partly in preparation for recording this。
but partly because its something that i always wanted to do i went to pearl harbor and there is truly nothing like being there in experiencing that growing up in America we basically havent had attacks on our soil its nine eleven and pro harbor period so its a very unusual thing to see in your own country the revenue of an attack and being over the sunken ussarizona from the Japanese bombing its a the hero wing and heavy but i think that thats a experience i recommend to anyone OK！
so that was kind of lockied and Kelly during the war fast forward now the kind of the waining days of world board 2 end of 1944 into 1945 its pretty clear that America and the allies are gonna win the war at this point in time， but its also becoming evident that there are two big problems that are emerging one very immediate and one sort of longer term the immediate problem is that in the skies over Europe， in the air theater of the European front， a new technology is appearing on the German side jetpowered fighter planes have begun to pop up and were not a military history podcast save this for hardcore history and dang Carlin but my understanding of this is that the German jetfiders entered the war to late to make a difference but if they had entered service earlier， it would have been a big problem so the us the allies will go crap we need to step up our game and get a jetfleet in service for us asap and freanyone whos not an ave geek out there are an aviation geek its worth knowing going from a prop airplane to a jetairplane is not just incremental its an entirely different technology you may have heard the phrase if youve looked into this before suck squis bang blow it is a completely transformati 幅 process of how the engine uses the air in order to create thrus that is much more sophisticated than just a propeller my understanding is the engines that airplanes were flying before than even the P38 as fisticated as it was were basically automobile internal combustion engines totally so were observing overseas our enemy has a completely new technology that we have not tamed and mastered yet were to disavanage so thats one problem and were going to focus on that first theother problem to put opinion for a later and we start to get worried that are ally the Russians and the Soviets are relationship with them might not be quite what we think it is uh we might have to address that in the coming decket so keep that in your back your mind is we go along here but lets start with the jetproblem so the German plane that had started appearing in the skies over Europe was the measureschmit nickname the swallow， and it was the worldfirstoperational jetpowered aircraft it flew close to five hundred fifty miles an hour， which is over a hundred miles an hour faster than any allied playing including the lightning P38， so the us government turns to of course， the very best person for the job to start the us jetfighter program， Kelly Johnson and lockid， and they tell him go make a sagefighter as soon as possible and by any meansnecessary and when we say as soon as possible， we want a prototype in a hundred and eighty days wow with the spec that it must go faster than the germanswallow so at least 6 miles an hour you need to pull out all the stops by pass any red tab do absolutely anything necessary to make this happen and for those tracking along at home 6 miles per hour not quite the speed of sound not quite mock one， but approaching that something like ethish percent to mock yep so Johnson handpics 23 of lockheeds very best engineers and designers and about thirty of the best shop people the people that actually build the airplanes and get this he rents a literal circus tent to house them in the parking lot next to a plastic factory that is nearby talakids headquarters in Burbank， California and it is because of this that the name skunk works is born because of the outdoor nature in the tent and the smell coming from this plastics factory at the time there was a very popular comic strip called little abner and a character in this comic strip had a outdoor moonshine still making boot legs probitionary alcohol and this still in the comic strip was called the skunkworks i think it was called the skankworks thats right the skankworks with yeah oh and eventually， the publisher of little avener sues Lockheed over using skankworks so they change it to skunk works so in this circuit tent in a parking lot Kelly and this supereleaet team from lockid build the first prototypeusfighterjetnamedlulubell in 143 days start to finish this is just wild for years the us had been working on this technology and they hadnt gotten it operationized the Germans beat them to it and then in a hundred and 43 days， kellien lockied gofrom zero to flying prototype wow！
crazy what a testevent to him and to this organization in the circus tent that he is built this gun works seriously so this hundred and eighty day thing is a very interesting constraint placed on them and it means that they immediately need to go to an acquiredaxium that wetalked about forever dont do something thats not your core compedency aka doesnt make the beer taste better or make the plane fly faster exactly an outsourceeverythingelse and if you only have a hundred eighty days to do it， you are not going to become an engine manufacturing company you are going to look around and say OK， which of my allies has the capability to just give me an engine so they find this British company helford and they take the helford H1B Goblin engine and that is what they put in this prototype yes！
this prototype the Lulu Belle we go on to become the P80 shooting star lucky would ultimately make about two thousands of them and while they wert really used in World War two githuwarended they would be used in Korea and it would be the first jetfighter playing in the us military point though that we didnt cover earlier about lockied and skunk works they are not engine manufacturers all of the engines that were going into the planes before during since theyre getting from other companies and that is true across the aerospace industry thats interesting that the value chain of all this way were basically no aircraft manufacturers to this day make their own engines in commercially Yougot Roles Roysg e？
but every single one of these lockid planes the engines are made by someone else yeah！
very different from how the automobile industry evolved where like obviously Ford and gm and what not theymaking their own engines yep， so this amazing feed building what becomes the pae shooting star and the us is first Jessie plane in less than six months this is the beginning of scunk works and callrealizes hey， this is something pretty special here so i want to read a little quota from the skong kworks book that primitive skunkworks operation setstandards for whatfollowed the project was highly secret， very high priority and time was of the essence the Aircore had cooperated to meet all of kelliesneeds and then get out of his way and boytoday deliver so the pad would eventually give way to the F104 starfighter。
which was another invention from Kelly in the team Kelly would win the Collier trophy for this so after the war Kelly says hey！
this is special， we should keep this going and the gross brothers in luckie ads management agree and they say yes， you can keep this squad on quote skunkworks division going as long as it doesnt take too much money and it doesnt distract from your duties in the rest of the company as now the new chief engineer。
so Kelly is both the chief engineer of all of lucky and running skunkworks at the save time itunsane this not taking too much money thing does become a core tenant of the scunk works operation because you can sort of get around managements， iron and managements need to report to share holder some things like that if youre doing amazing things in pulling rabbits out of hats and when its not going well， youre not a huge burden yeah！
so im read a little more from scunk works here so Kelly enishandfulof bright young designers that he selected took over some empty spaces in building 82 this is a building on the Lockheed campus， which is right next to the Burbank Municipal airport its an unmarch building literally like this is a commercial airport that average people are taking off of every single day， so that it continues those guys brainstormed what if questions about the future needs of commercialmilitary aircraft and if one of their ideas resulted in a contract to build an experimental prototype， Kelly would borrow the best people he could find in the main plant to get the job done that way the overhead was kept low and the financial resks to the companysteedsmall his small group were all young and highspirited who thought nothing of working out of a phonebooth if necessary as long as they were designing and building airplanes all that mattered to Kelly was our proximity to the production floor a stones throw was too far away he wanted us the engineers and designers only steps away from the shoppworkers to make quick structural or parts changes yes！
i love this， i think this is a huge learning keeping your designers as close as possible to production， so the game of telephone is as short as possible it is incredibly valuable and having the designers being able to glance up at their desk and see like literally the way things are being manufactured so they can say oh that look good and the diagram but in practice， you have to bring this big thing around over here maybe we can make that better the next time we design it its just such a great key insight the other thing on the small number of people this gets to the skunkworks rules and Kelly created this incredible document fourteen rules that will link to in the shownotes oh， yeah， the third of which i mean theyre all incredible the third of which really applies here and i quote the number of people having any connection with the project must be restricted in an almost vicious manner use a small number of good people 10 percent to 25 percent compared to the so called normal systems these people should allbe together all of them building relationships。
collaborating， working together to produce the very best product and you see this in products in the future to the iPhone。
the iPod， and you read the stories but the early teams there six 80 people there all full stack so there is these unicorns that cross disciplines and there tenx hundredx engineers so you really only need a handful of really good people OK listeners now is a great time to think one of our bigpartners here acquiredservice now yes， service now is the ai platform for business transformation， helping automateprocesses improve service delivery and increase efficiency 85 percent of the fortune 500 runs on them and they have quickly joined the microsofs at the nvidias as one of the most important enterprise technology vendors in the world and just like them service now has ai baked in everywhere in their platform there also！
a major partner of both Microsoft and Nvidia i was at nvidiasgtc earlier this year and Jensen brought up service now and their partnership many times throughout the Keynote so why is service now so important to both Nvidia and Microsoft companies weve explored deeply in the last year on the show well ai in the real world is only as good as the bedrock platform， its built into so whetheryoulooking for AI 的 supercharged developers an it empowerent streamlinecustomerservice or enablehr to deliver better employee experiences service now is the platform that can make it possible interestingly employees can not only get answers to their questions。
but theyre offered actions that they can take immediately for example， smarter selfservice for changing 41K contributionsdirectly through AI powered chat or developers building apps faster with ai powered code generation or service agents they can use ai to notify you of a product that needs replacement before people even chat with you with servicenals platformat your business can put ai to work today its pretty incredible that service now build ai directly into their platform。
so all the integration work to prepare for it that otherwise would have taken you years is already done， so if you want to learn more about the servicenal platform anyhow a conturbochargethetimetodeployai for yourbusinessgoovertoservice now dot com slash acquiredand when you get untouchjust？
tellthembedondavid sent you thankservice now all right David so what makes func workswork well to start？
all that mattered literally the only thing that matters is rapid delivery of superior products and that was driven by the expedient requirements of World War two literally saving America and the free world and then the cold war which is gonna come in in a big way in a second here listeners might be thinking isnt all that matters in any business rapid delivery of superior products like why is this new in unique indifferent the reality there was that thats almost never the case， theres politics， theres personalities well！
and you rarely have a existential threat that you must cut through all the red tapeits like operation workspeed the way that we got the vaccines as fast as we did if the world is on the line what can you do away with in your processes and which people can you hand select to solve it competition and existential competition kinahasaway of bringing out the best in people so Ben you already talk about rule three i wanna did we pick the same ones im so curious we got fourteen to pick from lets see lets pick three that were gonna highlight here we already talked about number three what are your others？
the text one one talk about is the skunkworks manager must be delegated practically complete control of his program in all aspects yeah！
i mean this is like the autor theory like you have to have a single persons vision and the box stopping with a single person who has ultimate control inisan asquesed middle manager hes the program manager for any given program that theyre working on anyaircraft and also， hes the guy flying to Washington to interface with the government its not like hes dealing with the engineers and then call on the salesforce in being like hey， can you go to a stakedinner with our guy？
then Washington， no its Kelly and yeah！
its most productive skunkworks i think was about maybe fifty designers in engineers and maybe a hundred machine is in shop people like this is not a large organization its crazy my last one is the last one of the rules yes， this is one of mine too because only a few people will be used in engineering and most other areas ways must be provided to reward good performanceby pay notbased on number of personal supervised so Kelly has a quote about this in the book in the main plant， they give raises on the basis of the more people supervised i give raises to the guy who supervises the least that means hes doing more and taking more responsibility， but most executives dont think like that at all their empire builders this is so important yeah！
totally agree and in fact。
its thinking like a capitalist to i mean its really like how can we achieve the most with the least not how can we achieve a fixed amount with a fix margin so this one more thing that is in in any of the roles because i think its just sort of a implicit on spoken assumption all of this only works if the small group of people that if brought together are highly motivated， and i think the reason this was taken for granted for like all of skunk worksa day was you know？
hey， the mission here is preserving your life and the lives of your loved ones and America from losing role board to and then do having nuclear bombs dropped on it by the sovia union you dont really need a lot of extra cajoling or motivation here totally！
and you gotta think back this was a timewhere Americans superiority was not guaranteed i think we have a reasonable add of complacency today Americans feel very secure sure there are enemies but are we gonna be fine totally！
we dont need to think about this that much we can decide a prioritize other things and have passions and say yeah other people can take care the nationalgood cause like it will be fine either way that was not the belief at the time no theres this great quote inskong kworks were Ben rich tells the story of his first day inskunkworks whereheshown the YouTube prototype for going to talk about the YouTube in a minute here but literally day one he shown the prototype of this top highly classified， highly secret airplay and that nobody can know about he says the full wait of governments secrecy fell on me like a sack of cement that day inside Kelly Johnson sguarded domain learning an absolutely momentous national security secret just took my breath away and i left workbursting with both pride and energy to be on the inside of a project so special and closely held， but also nervous about the burdens it would impose on my life this is exactly to your point you know with great power comes， great responsibility here yep OK！
so what are the machines that sort of unfold from here yeah！
alright so a minute ago i was talking about the two problems that American its allies have at the underworld war two one was the jets skong kworks addresses that with the padshooting star theother problem is yeah were gonna win this war but theres a whole new war thats just about to start yeah and the war were coming out of his World War two but of course， the cold war against the Russians is just starting and this is so hard for us to process today， but doing the research i really felt it i think for a lot of people， the states and the pressure， and the worry about the cold war was greater than World War two yeah thats a great point when the Americans entered world were two we had reason to believe that we could come in and win the cold war i think to the Americans like he felt very different i think we had good reason to believe we were not Gonna win so right after the war Churchil comes to Americangives famous iron curtains speech in Fulton Missouri that an iron curtain has descended over Europe in the form of the soviet union and then before the end of the decade， i didnt really realize the timeline on this in the August 49， the soviate union detinate its first nuclear Bob nobody believes that they were gonna have the bomb that quickly or that powerfully and not only did they have the bomb， but whether this was real or not or positioning people really believe that the Soviets and crucieves intention is to use the bomb against America if they ever believe that they could do so without fear of retaliation that they could knock us out first that they would do a first strike and use nuclear weapons on America and this kicks off the cold were arms race and people probably know and learn about mutually assured destruction and detorents thisreallywas the policy of the military in the American government that we need to have capabilities to deter the soviet union from launching a first nuclear strike against us bybeing able to guarantee and have them know that we guarantee that if they do so we will destroy them so they cant do this because if they do， they will be destroyed that was the whole policy and thats like a really scary place to beat thisislikeif somebodyovertherein the gremlin decides one day that they think they can win were all gonna die right in 1955 there was a national poll that ask the question what do you think you are most likely to die from and over half of America responded that they thought they were most likely to die in thermoneclear war wow， above anyothercos let that sync in over halfof the country thought they were gonna die in nuclear war horrifying and so in a workperception， intelligence is paramout bingo it is the most important thing even more important than your ability to strikeendwage for isyourability to know what the current state of the opponentsability is to strikeendwage war so that means that the baliground is no longer the use of weapons， but the intelligence about the existence and positioning of weapons and nobody is better suded than scunk works to be the us government in military primary sounds clich to say but sword and shield during this were yes！
so this brings us to the you to spy plane and this plane serves such an important purpose that ended up being broadeda service in nineteen 55 and was only decommissiined in nineteen 八九 yeah， incredible now， there are many airplane programs that have ten twenty twenty five yeartimeframes for very different reasons yes， that we will talk about in the military industrial complex， but the YouTube was basically the first time that America found a plane that it could use for a longtime and wasnt rapidly replaced by the next best thing OK？
so it would be really great if you know you could fly a plane in over Russia and take pictures and understandall this cause theres no satelates yet oh what are there satellites oh， what talk about that a little later but you cant just fly a plane in the Russian do that its a closed country the Russians are gonna shoot you down if you do！
it were not technically at war！
so it would violate international trees to go into their airspace we would start the war by doing that exactly so the first thing its funny its cutting the news now that chinas doing this now the first thing we tries unmanned spy balloons we send balloons over Russia failed weatherexperiments yeah！
failed weatherexperiments yeah！
that failsonyfronts including actually returningusiblephotos of soviet nuclear installations so really it becomes clear that whats required is an entirely new type of airplane they can either do one of two things an idealy both flyover Russia stealthily and undetected by radar or two flyhighenough are fast enough that they cant shoot it down even if they do itsoscott works being the ambitious organization that they are tries for option one and we dont frankly know very much about what rushes capabilities are so were pretty sure that we can build some airplane that flies high enough that there radar systems wont detect us and great so lets do that yeah great so this is interesting what government agency contracks them to do this its not the military， were in the spy game now its not the army， not the navy， not the air force， its the cia they are building their own air capabilities and all of the workthatscount works does here and for many years come as for the cia yep， so what exactly is the challenge that skunkworks has laid out in front of them for designing this new spy plane well， at the time。
the maximum altitude that airplanes flew was about 40 feet the us thought that the Soviets best interceptor fighter aircraft could get to about 45 feed yeah！
and we also thought that there radar wouldnt function above like fifty five thousand right we were like right as long as we clear sixfive thousand we should be higher than their reader could even detect and certainly higher than their fighters could come get us right so the cias back first count works for the you two is apply at 70 feet now there are a couple problems with one is that normal jetfule doesnt work at that altitude you do at that altitude the pressure， the temperature， everything about the environment youre getting to be closer to space than you are to normal earth， atmosphere， and things stargoing wrong so uh that one they actually subcontractwith shell oil to make a new formulation of jetfuel that does work up there so you know that problem is solved problem number two is maybe a little bigger and that is that humans cannot survive and that altitude so certainly you need a pressurized cabin but if something were to happen and you need to be out of the koban you know cold no air blah blah blah yeah and i dont know the technical details but i think even the cabinpressurization technology that existed then was not going to cut it at 700 so you basically need a spacesuit exactly some of this technology came from like diving suits and some other things that came before this but i think this was the big coming together of the technology that created thespacesuit and thats what they put these pilots in well so lucky aid and scunk works when the contract from the cia， they start working on this plane in sometime in 1953。
incredibly top secret。
we wouldnt reveal the fact that this existed to the Russians are own people for years and years and years i mean this is like the quote from earlier that we read from Ben rich when he started working on this project day one and saw the prototype and it hit em like a sack of cement you know how important this was so skunk works complex and delivers the plane by July nineteen 55 so like a year and a half and for a total project cost of three and a half million dollars thats an m that is not a b i yearn a half and three and a half million dollars for one of the most important products and pieces of technology in American history。
astounding this is whatsgunkworks is capable of so theyre flying higher than any plane is ever flowing before theyusing a different type of fuel people are flying in a spacesuits for the first time feels like to be a reconnosense aircraft you would also need one other key component in order to achieve the mission of spying on the enemy yeah to take photos you need a camera indeed， and you would need an all new type of camera with all new type of lens capable of taking photographs of something 7000 feet away from you through you know a whole bunch of atmosphere Gosh if only the us had someone who was just incredible at the sort of pioneering optics technology indeed the us did and that was doctor edwinland and the polaride company who subcontracted and created all of that and actually！
i believe it was edwinlandhimself that helped convince presidenizon Howard even pursue this project in the first place whois like we can build the camera， they can do this if we can get the airplane build， we can do this project this bleu my mind is so cool to see the intersections of different innovators throughout history i mean edwang land is the man who inspired Steve Jobs and hes building the youtuescamera oh this way we are gonna have a lot more tech and silicon value and apple stuff thats gonna come up here in just a little bit so they build the plane you got a test thing theyre not gonna roll it out the runway in burbank and take off and uh you dont just head for the soviet union you gotta tested and i you know its got to be secret of what not and remember Kelly Johnson one of his big principles is like we test our products you the government dont test our products we test our products and we should be clear this YouTube spy plane looks crazy it has a hundredfoot winkspand yeah this thing if you saw！
it taking off you would be like OK， Ive seen airplanes that thing is completely different so its not like they could disguised it like you need to figure out somewhere in the United States where theres basically nobody so that you can test this thing oh！
this is so fun oh this file on our faces is like you cant see us but it is stretching out of the room here yeah you cant just paint this thing like a schoolbus and pretended something else so they need to find a suitable test site they go scouting all across the western u s and kind of remote areas Kelly Johnson is sort of like Sam Walton then is prop plane scout now for you to Walmart locations find sideways and then they get an idea and that idea is where is a place where even if there were people before there sure arent people now because nobody in their right mind would want to be anywhere close to where we just tested our nuclear bombs and they go oh as long as we figure out that its safe that would be a perfect place for us to test this airplane so they find a dry lake bed in Nevada called groomlake and theres quote from Kelly Johnson here about this in the book we flew over it and within thirty seconds you knew that this was the place it was right by a dry lake man alive we looked at that lake and we all look to each other it was another adwords like edwordtherefor space so we wheeled around landed on that lake taxied up to one end of it was a perfect natural landing field as smooght as a billiard table without anything being done to it how insane is it that this is where we were testing nukes i actually do not understand how there was not radiation poisoning and i i dont fully understand the halflife and all that needs to be done but like howis that safe yeah its insane and not only were there recently nucleartests happening right nearby i believe that nuclear testing continued right nearby！
while theysingthis site GROOMELIKE 2 test the YouTube 20PERCENT is the craziest thing they had delict sometimes takesometime between the most recent nucleartest and when they wanted to go fly， because these sites are like download twelve miles away from each other something pretty close if your curious listeners， theres a screid documentary on Amazon called secrets in the sky， the untold story of skunkworks that has a bunch of footage of all this well！
so listeners if you havent caught on already the location that we are talking about a navata test side in the middle it deserves nuclear some really strange looking flying aircraft this is area 51 哈哈哈 scunk works creates area 51 and of course。
theres rumors of ufos there they want to keep everyone away for the people who they cant keep away theyre gonna see some really weird flying stuff so of course。
the rumors are gonna start its all goodness for skunkworks this cover is great uh its even better than that i cant remember which plane or when this was but at one point time， there one of the test plates crashed youthepilot survived in lysomebodyson he was wearing a spacesuit nobody do what a spacesuit was of course， he looked like a freakin alien right？
it would be another ten years before， we would have the mood missions yeah！
its so funny amazing！
yeah！
its all skong kworks in the YouTube wow and then the blackbird and everything else were gonna get into later in the story all happening at a very A51 the prep work that the pilots had to go through before getting on these planes to were nuts they needed to breathe pure oxygen for two hours to remove all the nitrogen from their blood in case they had to eject because it from these are testpilot on a superexperimetal aircraft they were often ejecting or they were often you know things went wrong in these tests yeah， a bunter people die doing this like we should say yeah i mean a great sacrifice to bring this program and subsequent scunk works programs into the world but basically what was happening is if you didnt breathe peer oxygen for two hours， you could get the bends you know for anyone who scooby dived and you cant fly right afterwards from ejecting and so its like well， if you manage to get out of the aircraft before it crashed， then that could kill you so you need to make sure that this sort of oxygneting your blood in getting rid of all the nitrigen made it so that if you did need to eject， then you would survive this as well yeah crazy OK？
so they test you two at area 51 so great they get it up and running an inactive service as an operational spy plane pretty much the worlds first of this type within a year the first soviet union overflight happens on July fourth nineteen 56 of course！
it was of course！
it was still like fourth no， this is so interesting there is a whole bunch of things that happened when they take i like they dont know whats happen is this thing could a work of the Soviets gonna see us like weve gonna learn so much here you canscript this stuff the Soviets tracked it on radar even at 700 the whole way the whole way right from it takes off the whole flight path through Russia they knew everything that we were doing we were super wrong about there radar they didnt just have low altitude radar they were capable of radar they could see straight up into space wherever we were flying they were gonna see us yeah， which we had no idea so we do we learn this as part of it so hereso is funny we know that they see it from takeoff they track the you to the whole way this whole top seeker further like oh no its busted they see it but it turns out they cant hit it so you know a whole bunch of fighter jets scramble on the fighter jets they cant get upthat high， so they cant intercept it theylaunchsurface airmissiles the missiles cant hid anything that highup so do you two just flies along theytrackingat the whole way this plains flying along behind it and they cant do anything but at least we get the Intel now in the us said OK！
they can see up here and so its probably just a matter of time before theyre capable of shooting something down up here to yes！
but heres whats so interesting remember this whole world i got its fascinating its a war but its not a war its a war of perception so in that flate we get incredible photographic observational evidence and we would fly so many missions over Russia for the next few years getting this incredible intelligence the Soviets never say anything because if they were to say anything and say that， they tracked us into it then they would be admitted that they were powerless to stop it this were of perceptionlike its so crazythe incentives in motivations here but it makes sense theyre not gonna say anything and reveal the program so it remains top secret because if they did theyre sort of position and postring of strength。
would be compromised and neither country really wants to be at war so were both maintaining this i were not at war you know and were not gonna tell you that were preparing for if we need to be， but of course， were gonna do whatever， we can to understand the best about our enemy or not our enemy our other countries yeah， that were not it were with adversary right！
and i actually think there may be you know military historians that understand this better than us， but i think this was actually an optimal outcome for the us because remember just like youre saying， but nobody actually wants to go to war here the goal is for both sides to keep each other in check and so this the you two in these reconlicense missions become a major chestpeace peace for us on our side of the board to keep the Soviets in check we like this state i think that they know about it。
but nobody talks about it theother crazy thing is this camera is incredible if you look up photos taken by the YouTube spieplane it is remarkable what in the MID 50， this thing was capable of taking photographs of from 780 feed the engineering all around that went into this is just increven we you could do a whole podcast just about the technical aspects of the engineering advances and it basically works they find a whole bunch of nucleartest sites they find where missiles are kept we basically have a realtime count of the soviet unions warheads the soviet unions fighter jets the capabilities that they have what there are because its painting are airplanes so we now know that that exists mission accomplished in spades on this thing you would talk earlier about the cost of three and a half million dollars i think you could make an analogy to like the Louisian a purchase in terms of like best deals that the United States government never got relative to like the benefit to America this is here are you believe the last great deal they got from lucky Martin but yeah well！
no theres some more that were gonna talk about in a minute so this all continues we fly dozens may be hundreds of you two missions over the next ppyears the Russians are constantly trying to shoot them down they fail nobody says anything and then on may first 1960 ironically on may day we launched the YouTube program on July fourth and it ends at least over the sovie union on may day 1960 the serviets finally have developed a missile that can reach 700 with accuracy and they shoot down a you two this was the first time in history that a ground to airmissile had shot down an airplane i didnrealize this i read that i was like oh， wow， i guess maybe the technology is an existering world were two the Korean were and um so this was a major historical moment in so many ways America and the cia and the government the president theyirway theylike OK right what do we do americaspostus is we were never there right but we know now that the motivationforrussia not to talk about it now is gone now they can position this is like hey weresostrong that we can keep people out we expect them to i say something right away couple weeks goodbye they say nothing quite surprising all we know is weve lost contact with our pilot and we didnt see them come back in land so we presume that they shut down our pilot but theyre not saying anything but we dont really know and we presume that if this plane was shot down as we think probably the pilot was guilt having like you shoot down a plane from seventy thousand feet right probably the pilot was guilt well thats 14 miles in the year yeah no the pilot was not killed the pilotsname was Frances Gary powers pilot powers if you know anything about you accessor you probably know his name and you probably know that he miraculously did survive and was captured and interrogated and probably tortured by the Russians and that this was the revealing of the YouTube program so what happens turns out that there was a big summit in Paris scheduled for later in may between izon tower increase chef increase chef announcees on the Eve of the summit that they have captured in American pilot they have captured this new plane that the us has been illegally an in a provocatory， manner flying over soviet airspace they have defendtheircountry and shouted down and this creates a huge mess eisenhowerefirstdenizethis and then emits it when we realized like oh shoot， this pilot is still alive hes confessed like wow this is a disaster yeah so but i get there probably was a path where this could have led to escalation fortunately it does not but it doesmean that the YouTube program at least over Russia is done we dont fly anymore youtuesover Russia we cant amid if we were to do it at this point， we know they can see us they now can talk about that they can see us and they can shoot us down like it would escalate to war if we kept doing this we have to stop the YouTube becomes quite useful for other locations around the globe but not over the ussr itself this there was a huge problem this was the most important thing in the war and now its gone right we now have no way to take photos of military sites in Russia because we cant fly planes over there anymore right for blind what do we do what do we do well the world would not know until 1995 this would all become dclassified under the clintadministration but that was only true for about threemonths thanks to another supersecretive lockid division that figured out another way for us to take pictures of the sovie union yes！
and this listeners is where if youredskong kworks or watch documentaries about scunk works？
what were about to talk about is not in any of those this is a completely separate story that takes place in a different place in California that is a dtour from our skong kwork story and will be back because my god diskong works do some incredible things after the YouTube but before we do that we want to take you to northern California and the origins of Silicon valley and lockeads participation in that our right listeners， our sponsor is one of our favorite companies vampa， and we have something very new from them to share of course， you know Vanta enables companies to generate more revenue by getting their compliance certifications thats sock to ISO 2701， but the thing that we want to share now is Vanta has grown to become the best security compliance platform as you hit hypergrowth and scale into a larger enterprise its kind of well when we first started working with Vanta and metristina。
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David so i had forgotten about this story i knew a little bit of it from watching steveblanks great talk maybe five eight years ago， the secret history of Silicon valley。
but you sort of found the last twenty minutes and then just dug in like a splinteron this particular moment in history and how it is all tied into Lockheed Martin so where are we going yeah well and its even lesser knownthan that only certain versions of that talk that Steven has given contain the lockied story cause so much of it is only recently been dclassified a lot of it even after he first started giving this talk so what really turneontothis was some of the chapters in beyond the horizons even though that book was written in the late 九十 i started digging in and then i started watching some YouTube videos with some of the people involved in this i was like oh my god there is this incredible story here that we dont realize yes！
in typical David Rosenthall fashion you sent me a note theotherday， and said you have to listen to this starting at 8000 fifty like what is this and i click and its a guy at a podium with a terrible recording setup from the itripplysilicon valyhistory video so industry association this thing has a hundred and twenty four views after beingposted seven years ago incredible this stuff is buried i honestly cant believe it and im so glad that we get to tell it here alright！
lets set the context so we rewind back to World War two one thing we kind of mentioned here now as we were talking about the you two and the Russians tracking it on radar but we didnt talk about during World War two was the importance of Radar now so much of world board 2 was an airwar both in Europe and then especially in the Pacific and the development of both Radar and Antirar Technologies was paramout in the war efforts yes， there is lots of landbased fighting and tanks in all that stuff but world two was the first real airwar and obviously that important soverade are continued into the cold war just like we were talking about with you two flights now during World War two where was all of the us and Radar work and research being done it was primarily being done out of two institutions in Boston， MIT， with the radiation laboratory or the rad lab and Harvard with the Harvard radio research laboratory now， herewhats interesting neither of these two labs at mit and Harvard existed before the war the government directed mit and Harvard to set them up as part of the war effort they didnexist before and then mit and Harvard very fortunately for Californian Silicon valley shut them down after the world now it turns out that the head of the Harvard lab was a professor named Frederick termen might ring some bells for people especially people who went to Stanford termen was probably the worlds leading expert on radio engineering and also vacume tubes in earlycomputing except termen wasnactually a Harvard professor termen was a Stanford professor he was just on loan to Harvard during the warriors because thats where the government setup the radio labs and the government allocated millions and millions of dollars a funding to Harvard name it and something like 50 dollars to Stanford all of the funding for this was harvestmit yes， they assembled all of the worlds experts in termen was arguably one of if not the leading world expert in radio engineering assembled them there in Boston i get some Cambridge at Harvard and mit camera residents we get mad at us we say Boston so after the war termen comes back to Stanford because Harvet shut down the lab he comes back to Stanford， and he does threethings first， he recruits away all of the best people that he workedwith at the Harvard radio lab from universities all over the country he recreates them to Stanford and he gives them tenyear immediately yes！
hes like i want to make this deal as sweet as possible for you because i want a will Stanford into existence as an engineering institution yes of the highest order so thats what two soon after he gets back to Stanford。
he becomes the provost of the entire university as provost he completely changes the way tech transfer is done at Stanford， no other university has as good of a tech transferer policyas Stanford theyre notoriously friendly yes， notoriously friendly and everywhereelse including Harvard。
MIT friends and Bob of are notoriously unfriendly and hard to work with the classic story is Stanford owned one percent of Google thats been out which ended up making them an ungodly amount of money because of how big Google became and if that were at other universities， they would have said fifty percent is what we need to keep A 3 十三 percent is what we need to keep and they would asmother the innovation before it could become commercially viable now i sort it in the back of my mind new this cause i had watch steb blanks talk many years ago。
but i kind of forgotten i just thought is like oh well thats cus Stanford and Silicon valley like we get it were smart not the Wes smarter but theres this attitude of infere in Silicon valley even to this day illike yeah， we get how the culture works here and like the east coast doesnt get it as if this somehow existed， operi because it was just in the water and came from nowhere not at all its all thanksdetermined and world were two and his experience at the radio lab when he becomes provosed hes still， i superdevoted Patrick he knowshow important this work is that it was doing role were too when he knowsed its just as if not more important during the cold war， so what he does is he encourages students in professors to leave Stanford and go setup companies and work for defense firms and work for the military not to make money but to be like in the nationsservice take the research and the people who were doing the research out start a brand new company he would try to help you find funding。
which at that point venture capital didnexist， so he was introducing you to customers who could sort of pre order from you to fund your research and hebasically believe that a commercial ecosystem leads to more innovation than one that is purely happening in academia and thus could better serve the needs of the nation！
哼哼哼！
customer！
customer！
customer hang onto that dot for one second if you were doing all of this tenyears before， the university would of look at you and said what you do it youre encouraging the stuff to go away from us it would have been career suicide did me to do this instead whatsampredit becomes the best thing you can do for your career becauseintermentes mind its the best thing you can do for your country OK， so that was number two number 3 hecarves off a big part of the stanfur canvas now if youever been to the stanfur canvas， my god i was so lucky to spend two years there its like pavedingold its literally shangela they have so much land its the most beautiful like idylic place in the world and like eighty percent of the land is still undeveloped yeah， they own like all the way out to the ocean i think like its crazy so he carves off a part of the stanfur campus and develops it to be leased out as commercial space to corporations and the government to come people to start companies， companies to come to build the participate on this ecosystem all right there on campus its initially called the Stanford industrial park today its called the Stanford research park its still exists if youve been there its basically all of the office buildings up and downpagemailroad in paloralto so its hp inhua packer dont talk about that in a minute its testless landlordtoday its vmwhereits whereziroxpark was its wherenext was in Steve Jobs？
its where Facebook office was for a while this is where theranoose was my god so you might be like this thing like well， this is cool maybe i knew this stuff， maybe i did this is really fun silicon valleyhistory what is this have to do with lockied well， one of the very first tenants of Stanford industrial park then youre talking about customers customer who will go on to become the single largest employer in the area in protosilicon valley by a huge margin was a new secret division of lockid thisbluemymind this secret division is called the lockead missile systems division leader to be renamed the lockead missiles and space company and what lmsc lucky missiles in space company did i honestly think like it is bigger impact to the country to the world and certainly on business to lockied and so can value thenskung works the stories of a scale i dont there weve ever really told on required there are a lot of scunk works dvots David that is quite the assertion to say that this is a bigger deal well， lets talk about listnews you can judge theypatternthemselves after scunk works and took so many of the skong kworks management principles up to silicon value Iris readingskunkworks im like oh yeah， so many of these principles they sound like silicon value principles well， theres a reasonfor that OK so lockied makes the decision to start this new missile systems division in 154， but it becomes so much more than that obviously this is also top secret stuff just like scunk works so just like scunk works they setup the new missiles division Inburbank also in an Unmark to building they literally just copy paste scunk works right there in Burbank and so it starts in southern California it does but theres two problems without first its kind unwildy for a big company like lucky to have not one but two supersecret unmarked divisions right there on the main campus you know theyarns postnobouteach other or anything else going on like you start getting into weird territory quickly， but its important that the missiles division did start there because they talk as i said a lot of scunk works management practices the bigger problem is that it turns out that building missiles is a very different discipline than building airplanes because unlike airplanes you dont have a pilot in the missiles so you need missiles guidance systems and that means that you need radar and you need computing those two things are not whatsomething California is good at um， but you know whats really good at those things Fred termen up its Stanford and everybody that hes recruited literally the best mines in the world at all of that who are now at Stanford and who are now being encouraged to go spin out and start companies who might just be subcontractors to a big missile system that youre interesting and this is cool this is a part of the research that you did that i dont know much about yeah， this is great so the next year in 1955， lockied moves the missile systems division out of Burbank and up one on one to the Stanford industrial park huh the very same Stanford industrial park that Fred termen just carved out of the Stanford canvas and developed on pagemail road and lockid becomes one of the very first and biggest tenants of the Stanford now research park and is still there tothisday wow now they can actually do everything they want to do on the stanforcanface， youre not going to build a missile and test it on the stanfur canvas so lockied pretty quickly after they established themselves impellorauto， they also buy two 75 acres just down the road in sunnyvale and they build a huge campus there， a hundred and thirty 7 buildings so when lockied buys this， the population of sunnyvale is less than ten thousand people what lockied built sunnyvale i didnt realize that wow so how many people would eventually work in sunny vela locked so by the end of the decade in nineteen fifty nine， just four years later， lockied missile systems employees almost people in paloauto and sunny vale and a few years later by the MID 60， they would employ a thirty thousand people this makes lockid by a far the largest employer inthisbrand new protosilicenvy remember i just said lucky built sunny vale you think of sunnyvals Silicon valley today like Yahoo， Intel and all that Cisco there was none of that Lockheed built it so Huletpackard was the largest tech company computing company your Silicon valley company at the time Huletand Packard were students of Fred termen and Fred encouraged them to spend outstart Hua Packard they were the largest new tech company they only had three thousand people， one two three lockied had thirty thousandpeople wow！
oh my god funny story i knew at least as of two thousand nine that the lockied campus and Sunny vale was large because when i was interningat Cisco， i went on a run one morning and i was just sort of like exploring around and i ran into a lockids campus and i got chasedown by a security guard whos like oh you cant just run in here and id my headphones and i thought i was in big trouble yeah！
they had this huge structure called the bluequeuebut that is since been um disambled its not there anymore but you know you need a like big hangers build missiles it and they end up building a lot more than missiles were going to talk about and you mentioned they need radio and they need computing computing basically wasnt a thing yet i mean shockly coinvented the transistor just a few years before started shocklysemiconductor in 1955 thesame time as lucky discoming to silicon value right and of course。
shockley is a predecessor to fair childby conductor， which is a predecessor to Intel so like theyve got termines radio background but there really were any people with compute experience yet that was all happiting， concurrently all around them in sunny vale on paloauto。
so we talked about this a bunch actually on the first sequoia capital episode when we were telling donvalentine story and at the time when we were telling the story before he started sequoia， he was the head of sales at fairchild semiconductor and the head of sales at nationalsemiconductor and we started lost over we were like yeah you know he was mostly selling to defence companies well， who do you think he was selling to？
i mean he was selling to defence company yes！
now he was also selling around the country to other defense contractors to lockied wasnt the only company that was working on missiles but i think they were the only one that was working on missiles in Silicon valley wow and by guide did they buy a lot of product out of all these startups and all of these silicon startups that are coming out a Stanford and coming out a shockly and just getting sprung up right there and silicon valley？
i cant believe that there were ten times more employees at lockid in Silicon valley than a hp in a late fifties。
it is totally unsaved and so many people came through lockied into silicon valley including one Jerry wasniack， who moved himself in his youngfamily out to this new silicon valley to become an engineer at lockied missiles and space company thats right wasasdad the reason that Steven was neat group in Silligan value is directly because of lucky Martin！
oh， that is awesome， no lockied， no wasnsilliken valry？
no apple？
no apple crazy now to mention theres a really interesting point here， which is you wouldnt have this open commercial spirit to Silicon valley without termen and without the belief that the right thing for America was for all these companies to become companies instead of academic research or spread around another parts of the country it creates the silicon value ethos and create silicon value as the place where that ethos would thrive and its worth pointing out for people who dont spend a lot of time in the Bararea this has absolutely nothing to do with San Francisco nowadays its sort of this big blended soup of companies that have offices in both places and you can driver take the TikTok training between them yeah！
thats a recent phenomenon servertesgo is a completely different universe at this point that is in zero part responsible for the growth of Silicon valley yeah and beforethis time before the 50 there was no silicon it was called the valley of heartstolate that was the name for it wasnt silicon valley huh wild OK， so what was lucky actually doing there we talks about them working on intercounstic missiles， icpms and missile defense systems i i think they probably did continue to work on that but there were two projects that this new division of lockaid took on that really changed history and both of them together became forlockyat at least and the parent company by far， the biggest driver of prophets for the coming decades and really as will see this division you know， not skunkworks this division kept lockied alive would have absolutely died without this division so what were these projects one went up to space as perhaps as obviously weforshadowed and literally is in the name of the company， the Lockheed missiles in space corporation and the other one went down under the oceans so lets talk about that one first because i think it happened first chronologically， so submarines had obviously been a thing since world were two and even before that back to World War one theres lots of advantages to summarines during wartime theres stealthy they can basically travel anywhere in the world you can stay hidden for longperiods a time especially once nuclear submarines are developed can stay underwater for months at a time selfpowered theyre both a great offensive and a great defensive weapon during periods of active war， but during the cold war theyre kind of useless because ifyouwanted to have a chestpiece in position to strike a landbased target if you could even do that at all with the submarine， you get to get the submarine pretty dan closeto the land， which means close to Russia， which means they know youthere and thats a provocation hmm unless somebody could maybe somehow figure out away to fire an intercontinental ballistic missile out of a summary and go up into you know the air in into space and then hit a landfacetarget far， far away now this seems corasy gets hard enough to make this happenfromtheground youre talking about doing this from the seewithall the like waves in the lack of stability no waythis could happen this thing hasted thrus through air afterit thrust through water oh， what youre making the leeball ready that you would fire it underwater at first when the navy contracks lockied to work on this in 155 to build the naviesfleet ballistic missile system its fbm the ideas theyve Gonna fire these things from the surface of the ocean the submarine is Gonna rise up theyre Gonna extender， and theyre gonna fire off a missile from the deck of a ship or a surface subboring you could imagine another issue？
which is these things have rockets on them， so you have to not destroy the launch pad？
which is the submarine full of American humans well launching it yeah is a big challenge the reason that it was worth trying， was that if you could create a naval based inner continental nuclear strikecapability， it completely changes the strategic landscape of detorrents and first strikes， a second strike and retaliation so what we were really afraid of we thought the Soviets would pursue a first strict policy if they felt， they were able to the way that they would do that is if they felt that they could in that first strike knock out all of our nuclear capabilities if they could target all of our landbase icbms incapacitate them， then we will be incapable of responding with a second striken， then they could blow up our city somewhatnot now if all the sudden you have a mobile naval based missile system well， that completely changes the chasport its quite the deterrent， quite the deterrent you can now pretty much guarantee as long as you can keep a fleet of nuclear submarines operating at all times that you cant take them out and they can move around and be anywhere and so if you launch a strike theyre gonna launch right back and first strike is now off the table this is a huge strategic wind if you could put this actually operationally in practice the other medium if you will location that could change the dimension to fordoingthis would of course be space if you had nuclearmissiles up in space that also changes the dimension and this among many many reasons is why when the soviet union launches spotnick into space in October 1957。
even though spotnick itself was far from having nuclear icpm capabilities the soviews getting to space first was truly terrifying i canimagine how disconcerting it is in an era that you know now there are tens of thousands of satellites orbiting the earth all the time when that was a brand new thing when you could look up at night if you could see spotnick and youre like oh my god that thing anyday now could of a new game datus right！
OK， so back to the c it turned out like we were talking about a minute ago with that firing icbms from the deck of a surface shift be a summary or otherwise bad idea basically impossible but firing missiles from under the ocean was doable and lockhe did it with the help of silicon valley so in December 195 the Navy awardsthis contract the name of the project was Polaris people might have heard of Polaris missiles justover 4 years later after the contract disawarded in 196， the very first us nuclearballisticmissile equipped summarine setsale on its patrol and everything we just talked about hisoperationalized equipped with lockied Polaris a one undersea fired nuclear warheadspalistic missiles could reach landbased targets up to twelve miles away from wherever the summaring was when it launched it？
and it was all built out a silicon value with many subcontractors all over the place right i assuming lockhe doesnt actually make the nuclear warheads right like that was still happening in national labs at Sandia and all the places that were pioneered during World War two yeah！
lucky did not make the summarines nor did they make the nuclearwareheads i think a lot of this work was done out of Sandy a which we talked about on the Amazon episode oh， we have basios is dadworkthereright uh grandfather basios is grandfather was the head of Sandia， which was in new Mexico the military nuclear program the division of the us overall nuclear program i think was atolasalmos， but Sandio was the military arm of it！
which weirdly locked for many years actually had a contract to manage Sandia because theres some sort of strange partnership that happens where the federal government hires government contractors to manage national labs yep 2 enablethis strategic chase piece the key thing is the missiles nuclear subrings are dested nuclear warheads rdested the challenge here was Creed a system by which you could launch a missile from under the ocean out of a summary man i just got to say it is so fortunate and insane to me that neither side ever launched all the deterrence for all the scary things that could have come out of it and all the itchy triggerfigures and everybody getting close it never happened that is a big applays to humanity that we could have done this and no one did well this is one of the things that i mentioned at the top of the episode doing this research sort of changed my mind on the warm machine aspect of lockied and the military in the military industrial complex。
but i think people really believed， and i think theres good chance this was reality it was building all of these systems and advancing all of this capability that prevented it from being used if we hadnt built this stuff theres a good chance Russia would have done a first strike yeah！
crazy OK， so lockied after four years successfully does the underwater icbm launch yes！
and then that quickly leads to more successor programs and developing the technology further the Polaris becomes the Poseidon is the next program and then the triton the trident missiles had a five thousand mile range and carry a hugely destructive nuclear payload unbelievable terrifying all right， so we just told this incredible story about lmsc taking silicon value under the ation this program you know， Polaris Poseidon trident for most people listening especially， if youre American， these names arensurprising to you， youve heard of these programs you are aware that the us starting in the ninesixties， had nuclear submarines， carrying interchannel and all balastic missiles yep， it was if you think back to the kind of the task game， it was in the governmentsbest interest for the Soviets to know that we had these the point was deterns in fact。
we probably should have brained about this even if it wasnt real right， maybe it wasnt whonose we should have had inflatable subtain around that we thought were a nuclear！
maybe its all a cover maybe all the body that went into silicability uh dont i dont think that was the case either way you dont want to find out speaking of cover do you know about the things we did on top of the factories when we were building airplanes oh， yes！
and Disney was involved yeah starting way back in World War two， but i think continuing after that in the burbank facilities at lockied i know bowing in the Seattle area i another places to build basically these burlapcities on top of factories that looked like suburbs complete with 3D cars and trees and stuff， so that anybodywhowas creating a spy plane and flying overhead would mistake our manufacturing facilities for something inocused yeah！
i think it was by planes and also during wobber to bombers if bombers ever made it to the west coast that they would know where to bomb and im pretty sure that Disney imagineering was involved in creating these sets like they made for Disneyland its crazy housesometimes its in our best interest to make the adversary aware of our capabilities and sometimes we want disguise capabilities its really interesting， super interesting OK， so rememberback when we press paas on the skong court story and moved up the state of California out the coast to so it can value oh， wed said that when Gary powers and the YouTube were shut down in may nineteen sixty that supposedly this was the end of us observational givabilities in the soviet union and that it was for about three months but nobody do it well lmsc is the reason that we got our eyes back in the sky and you might know that eventually after the you two Sparkworks would create the next grades by planning the SR71 which we will get to but that wasnt for a little， while so this intelligence gap was filled by this secret not very well known project i think a lot of people in the military who did know about this stuff this is heretical to say because its so beloved but i think the blackbird was a decoy we were getting everything we needed from space hmm we just dont want anybody to know about it and so everybodys now is like oh the blackbird its such a shame the government shutit down you know was never used to its potential Kindle never needed to be because of lmsc in space wow！
all right im listening okay you got a lot of hairs of my arms yeah！
it is i do im getting mad over here people are probably getting very mad here we go so when you think about American space in the us base program you think of course about nasa Gemini and Apollo merquery canady putting a man on the moon all that amazing stuff， which for sure happened to and was happening all of that was basic science research nobody working on those programs public observing it like it would be crazy to think they are going to be actual applications in space anytime soon theres no infrastructure like these are science missions this is research and even you know spotnick on the Russian side spotnick was a research fast way was like the size of volume like a bollingball or side it was a little bigger but like it was very very simple it was a long longlonglongtime before you went from those initial science missions to applications in space or soeverybodythought because in parallel there was a secret us space program being run by lockied missiles in space corporation out of Silicon valley and in basically the same time frame as the initial nasa missions， the initial Mercury i think were the first missions Mercury Gemini Apollo yeah yeah， basically concurrently with that they got a fully operational observationalspy satelate system up into spaceunfunctioning at the same time how did we launch them with nobody layout there was a cover story for what these things were i think it was called the discoverer program i believe the cover story was that this was like life form research in space like they were sending animals up to space like monkeys to preparefor manned spaceflight that was the goverstory they may have sent some monkeys up there， but that was not the point the point was to get these for conicence satellites up to space so the first program was called Corona then you should Google about and read theres a great declassification document story that the government putout in 1995 they declassified this stuff and the Wikipedia page is pretty good yeah！
i downloaded it and i have it off from my computer its pretty crazy it says secret it has the classification and then it struct through yeah！
its literally the document that was prepared in secret and then dclassified i think what the cia and the national reconcienceoffice does i think they write these stories may be quasian realtime， so that theres documentation of all this stuff and then they stamp it secret and that it never gets out until it gets dclassified wow！
this is amazing but on the dclassification website， which will link to insources you can see a bunch of the pictures that the Corona satellite took including of the Pentagon so you can see like something you know what it looks like and you can see the level of fidelity that this 1959 satellite got of that ah lets get away okay！
so the name Corona there are conflicting stories of whether it comes from the Corona typewriter or the Corona type of cigar that apparently the uh pack on official that jumping this program really liked will never know its all classified so these satellites like weve been alluting to headcameras on them the first one went up in August nineteen sixty has built in the years leading up to that by lmsc and then went up in August ninesixty whileeverythingelse happening in space was you know research vessels this first Corona satelate had a camera system on it that was able to photograph anygroundlocation that it passed over in its orbit around the earth at a resolution as low as five feet from space these were a film systems now， the u two camera system did have a higher resolution than that higher ground resolution， but five feet was still plenty good and more importantly the Corona system could take photos anywhere in the world on its orbit and if you had multiple of these satellites up there， you know you could pretty much blanket the earth or least everywhere you cared about pretty quickly at basically any point in time you know theyre spending around the earth like yes you can do it in a real real time but like it doesnt take that long for the thing to fire around the earth and then fire around again right the very first Corona mission that very first satelate that went up in August 196 produced greater photo coverage of the Sovia union， then all of the previous you two flights combined five years of operating the YouTube program one sately in one kind of monthelogmission i think it was about a month before it decayed there were bit decayed got more than all of that wow no need to fly plane no need to worry about getting caught no need to worry about the Soviets knowing what was going on no need to worry about being shut down unbelievable theres a crazy stat over 800 thousand images would be taken by these satellites over the course of the program they got an enormous amount of coverage now you may be thinking as your listening you know you oh， i know how satellites and satellite imagerworks today you get Google Maps you get starling kido blah blah blah starling communication but like communication yeah， how did they beam these images down from the gram？
say these were not digital photography？
this was film freaking photograph so you gottget the film downfrom spaceis my point。
which they literally did how did they do it？
they dropped it OK。
so this the craziest thing they dropped fromspace a canaster with film in it mindu they cant mess up and expose the film and ruin it this is very delicate film they dropit in a cannister from orbit it entersy atmosphere enduring all the heat and everything its not lucky just shove it out of the saddle they had retrockets built into the film canisters to reacceleryoutoftheorbit and move it down to go into the atmosphere right cus if you just drop it out behind you， then it stays an orbit it needs to decelerate its rotational velocity so that it does move closer to the earth yeah， it is an a custom designed canister called the film bucket that general electric design it would separate and start falling to the earth after the incredible heat and violent action of moving through the atmosphere the heatshield that surrounds the vehicle is jedisend at around 60 feet so again where the highest airplanes can start to fly and parachutes would be deployed so yougot this film cannister this is my favorite part this is so good coming down with a parachute the capsule is designed to be caught yeah in midair， yeah by a passing airplane towing a claw the claw grabs the parachute and they use a winch to bring the film capsule into the airplane its like those claw games in the Ark to do like oh you pick up a literally they had a freakin see one thirty flying around with a biggest claw to snatch this thing out of the sky unbelievable you might say what if the c one thirty which by the way lockied airplane that stopefies today， the c one 30J what if the airplane misses it seems like thats a pretty reasonable probability when this things falling from spacing youre trying to catch it with moving object it can land at c and theres sort of a selfdestruct mechanism where theres a salt plug in the base that dissolves after exactly two days， which if that happens， then the film sinks forever to the bottom of the sea， so if the navy cant retrieve it within 48 hoursthe salt sort of dissolves enough？
because obviously what would the biggest disaster be would be of somebody else or the Russians got their hands on this and really holy craft somebodys taken photos from space of us right the whole thing is genius crazy and absolutely insane that it actually worked i believe it wasnt just one c， one thirty i think theyll fleet of c one thirtysol flying around where they thought this thing was gonna read you would need to have else or you i mean when you have an a satellite orbiting the earth that fast that i dont know what it is mocked twenty something its pretty hard to predict exactly where your tiny film catasters get a comeback and land and all this happened in 160 oh my god so all told the coronasaddly program and lmsc also design the agena Rocket， which was the kind of upperstage rocket booster that the Corona satelate another satelates feature set lets attach to and i think they sort of piineer the concept of a second stage like yeah！
we need a first stage to get us up。
and then we need a second stage to get us to a very particular orbit that we care a lot about being in so that system of the Corona and the agena was the first spacecraft in history to do all of the following things achieve a circular orbit， achieve a polarorbit be stabilized on all three axiesinorbit because you kind of needed to be stabilized if youve going to take photos at five foot resolution of the ground be controlled by a groundcommand return a manmade objectfromspace propel itself from one orbit to another by the way they returned 39 manmade objecsfromspace they took 2POINT 1 million feet of film of photographs in 39 Kans i mean any one of those things that i just mentioned if this weren a top secret black classified program for what three and a half decades will be all over the history， books and has is like nobody knows about this stuff yeah！
its the first obviously mapping of earth from space its this first stereo optical data from space its the first reconcienceprogram defined a hundred missions at all let alone one in space i mean this thing operated for twelve years yeah！
crazy so Corona with then lead to threefollowup programs that we know of im sure many， many more but there are three followonones that lmsc did that have been declassified so far some of these only veryrecently so the strategy of the program evolution overtime followed the forestages that we know of firstit was what they called see it as i was currena just period can we see the soviet union from space coronapproves that the next phase was can we see it well， and then the phase after that was can we see it all and then the last phase which is still lotted the last phase is still classified is see it now so lets talk about all of these Corona like we said was just see it get photos， but the photos read a worse resolution than what the YouTube was able to achieve in 163， only three years after the first， Corona satellite goes up LMSC and the government launch the Gambit program this is the seeit well， so gambits max resolution still has not been declassified we dont know how shark do what this thing launched in 1963 and it is still classified howgood it was， but it has been confirmed that the resolution was under two feet which was better than the YouTube cameras whoa less than two feedfromspace in 163 next was hexagon hexagon was the quotc at all program now this is starting to eclipse a little bit my technical knowledge and i think theres also just less known about this cus a lot of this is still classified too i believe the hexagon satelates had longerorbit lifespans and had more film capacity before they decayed。
and so i think they were able to kinol like see more longer i think is what hexagon was you basically would need larger format film with a wider angle lens if you dont want to increase your number of satellites。
yeah， im fuzzyest on hexagon then in 1977 theylaunchcannitm， which this is still like very classified some of it is out so i can we can know a little bit about this there？
actually was an incident in uh， i think is 2019 when Trump was president， he tweeted a uh， no a intelligence photo that was this like this incredible photo of you know incredible resolution of something it happened somewhere moving around any tweeted like oh see like it isnway you thought it like an people when notes people believe its never been confirmed that this photo was from a future version of the canon program ha， so what was canon penin yousee it now its the first realtime spacebased surveilence system i guess maybe the first realtime surveillance system period i dont know by 1977 there were enough communication satelates up in the sky and digital photography had come along far enough the canon satelates are like what we think about like Google Maps like its realtime digital photography beamed down via gramlink to stations in real time wow and lockied has to build their own digital workstations to like process these photos to display them to manipulate them like i think these might have been the first or like really early digital photo processing manipulation workstations that were sold the cia i didnbat any of this yeah， lucky build all this 哼 soligand valley well！
by the way you keep saying Google Maps theres a fun piece of trivia that im curious if you know who do you know， i think it was the codename， the original name for the Corona program oh！
Keyhall yes， yes， which is one of the companies the Google required that became Google Maps yep different Keyholl different Keyholl！
but ipretty sure Keyholl ink， which became Google Maps was named after this Keyholle program oh！
i very well， could have been Cuz it was another five when that was dclassified and im sure Keyhall was started after that yep just super cool along the way lmsc also does a lot a pionary work in weathersatelates and they launch weathersatelates because it turns out that most of Russia is undercloudcover most of the time so they got to know when you do the weather is gonna be clear enough to look pretty awesome well。
that when you get into like all the synthetic aperture radar and all the other types of sensing that you have inside now。
that are not just the visible light spectram in order to get visibility of stuff on the ground no rather the conditions yep there part of the positioning satelates that the military puts up and that goes on to be a opened up to a commercial using thats the gps system that we use today and of course， im sure lmsi is part of many many other things in space that uh we still have no idea about well yeah， one thing that we have a lot of idea about that they built that i had no idea to um researching all this so you know were now in the 70S this is going along and well come back and talk a little bit about this says we come back to scunk works here in a sec but well getting towards the end of the call board and this stuff is less urgent lockied nlmsc start moving into nonmilitary applications or trying to but LMSC getsacontract from NASA and builds the hubble telescope did you know that i did know that and martinmariate a future Martin and lockied Martin built the large orange fuel tank for the spaceshuddle！
which took the hubble telescope to space ha ha！
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what is undebated？
is that lmsc from a business standpoint within lockid became the croundule of the company huh？
which isnt true anymore or at least is not there a largest business today well。
i think at times in the sixties and sevenes and eids， lmscwasthelargestbusiness byrevenue， but almost through the whole time it was by farthemost profitable division within lockid， and thattimes when well get into lucky fell on some really hard times in the 70 there were years where LMSC generated more than one hundred percent of the prophets of lockideway， so the all of the rest of lockidedsguncorks included was in the red unprofitable bleating money and lmsc was keeping the company afloat wow and if you think about it， oh， i guess one like just what theyre developing and the scale of it and these contracser huge both under the ocean and up in space to though what theyre doing its different than building airplanes and i alluted to this when i talking about its a different taletset， this is much more technologyproblems and computing problems that lmsc is tackling here yes， there building missiles yes， there building rockets now that， but the core value components of those rockets is computing and silicon and ultimately software and as we talk about all the time on this show like well， thats really good margins definitely better margins than building airplanes hmm so the stats i have this is from beyond the horizons， which also is where a lot of the story especially of Corona came from during the twelve year period from 1960， Corona first launch to nineteen 72 lockied as a whole did 26 billion in revenue over that twelve year period and just two 55 million in total profit not a highmargin company during that period LMSC accounted for over a third of that revenue and a hundred and twenty eight percent of the profit so thats what i was talking oh， everything else in lockied lost money or at least in aggregate lost money and then during the earlypostcolboard period from 19731992， lmscaccountedfor 46 percent of revenue so growingpercent of revenue and 72 percent of prophets during that tenyear period wow！
there really is a completely different company today and i want to save why as we drift toward today in analysis now that。
but thats crazy how big the lmsc business was at the time it was a great business just from a business standpoint so the other thing i wanna talk about before we come back to scung works is lmscsoperating principles in philosophy， and so much that was built off the shoulders of scunk works and a lot of the guys in the YouTube videos that i found talk about this theirphilosophy though they codified into seven tenets so Kelly had is fourteenrules， lmsc had seven tenets and most of them are very similar to the scunk works rules will link to a um image of them in the shownotes one of them though that i want a highlate and discuss that to me stands out as different from skung works is tenant number one and that one is focus on a threat based need i think thats really interesting huh to me when i read that and thought about it that element is missing from skunkworks and kellies philosophy oh， this is conjecture here like theres no skunkworks book about lmsc so like we have very little information to go on but if that really was tenant number one for the company， i think you could maybe extrapolate that a little bit to the marketcontext is really important for what youre doing and dont lose sight of the market context for what youbuilding kelliese philosophy of all that matters is rapid delivery of superior products nowhereinthatstatementistheroomforthemarket well， who decides whats superior？
maybe a small number of people want this but do a large number of people want this like how important is this navially whatsccount works was doing was really important or so they thought i mean if they knew about this robust by satellite system well， this is the argument maybe it wasnt that important， maybe the blackbird was a decoy OK？
we have not talked about the SR71 can you please take us back to scunk works？
im like dying for my mock three airplanes and ribbon engines here uh OK whatserve but keep that in mind though a thretbase need was there a thretbase need for the SR71 maybe my computer wallpaper needs to exist so thats a need oh there was a market need was there a threat face need OK so skunkworks the greatest airplane ever built sure would be nice if we had a plane that couldnt be shot down， so when Gary pair is a shut down in may 1960 of course， as you would expect the cia and scunk works is already hard at work at the successor airplane to the YouTube everybody believes itkind of a miracle that they were able to fly for five years like they did they knew that this day was cutting when the Russians would be able to shoot it down， so as we talked about the YouTube primary defense as it so happened was an intentional， but as it happened in practice was how high a flu it was obviously trackable on Radar 70 feed yep its not like you could evade enemies fighters or missiles in this thing it had a hundredfoot wingspan it turned like a schoolbus it was how high a flu and then all of a sudden that was no longer defenssible， so its not very fast and it doesnt fly high enough to evade missiles so kind of useless yep so if you remember back to the original spec for the program there were three sort of vectors that were possible for how you could operate a program like this one was flyhighenough thats what the you two ultimately did there was also though fly so that it cant be seen by radar stealthy will come back to that in a few minutes here and then 30 make it goes so fast that even if they do fire at you， it just falls behind and then explodes miles behind your incredibly fast airplane yep so uh thats the path they took if you cannovate em outrun em yep its like the sonic the headtok of airplanes so this program if you know anything about the SR71 Blackbird Helike lets a Airforce airplane were talking about the cia here the Blackbird was not a cia airplane the program that the blackbird ultimately came out of was the a twelve oxcart this was essentially the same airplane will talk about the differences in a minute but this was the cia contract that they had scound works working on and it was yep the goal make this thing so fast that whether they see it or not theyre not gonna shoot it out this guy it has an even better camera i think also designed by Edwin land and it can get these incredible photos flying really really fast yep and to be able to avoid surface to air missiles that may basically meant that the specs for this thing were that it had to go mock three or fast now to outrun any you know missiles had to do that with a pilot there are the humans in this thing fasterthan mock three is faster than 2 thousands an hour if you fire a rifle that bullet doesnt go mock three if youstanding on the ground and you pick up a rifle and you shoot it an ASR71 fiesoveryourhead the SR71 will beat the bullet yeah it goes about two thirds of a mile every second this thing also is not very good at turning as you would imagine so theres a fun stat about the SR71 it cannot turn around in the state of Ohio its turn radius to change direction by one hundred eighty degrees is a wider turn than the state of Ohio oh well！
its deecommissioning mission just to show off how fasted ever when was one hour and five minutes from la to dc for being placed in the national hair and space medium yeah， coast coast in an hour well， and it does i remember being a kid looking at this thing like what we commercial then like you cancommercilize this day you got to be in a spacesuit to fly this totally it flies at 84 feed up looks black to you straight basically look black to you you can see the curvature of the earth you cant navigate really by earth based landmarks because the earth baseline marks are moving by you too fast so the best you can do is be like the Rockies are in front of me oh！
the Rockies are behind me and thats not terribly useful so they had to invent a new navigational guidance system that sits on the top of the plane r to d to style looking like an astromac from star wars to navigate by the stars so great i mean it is like fifty concurrent miracles that went into making this thing possible and hopefully this is obious but just to make the point again if some of you might be sitting there been like what you just told me about how the sister company lmsc did all this amazing stuff in space you go a lot faster than that to get the space in whatnot only dont humans on there so a pilots get a fly this thing and these are rocketengines these are jetengines that they figured out how to make go mock three yep OK so when skunk works and Kelly and Ben written everybody sit down to work on this the current state of the art fastest plane at the time this is late 1950 when they start working on this is the Mcdonaldouglas F4 Phantom which is able to hit just over mock to withits after burners on so not sustained flight like when you punch the afterburners， it can barely touch mock to and the f for itself was only a bit faster than the skunk works built F104 starfighter that benyoumentions earlier， which was the first Collier Troy that Kelly Johnson one so the idea that you were gonna achieve cruising speeds like sustained speeds above mock three this is a big piece to bite off here only a handful of planes have ever been able to do this since and im pretty sure no other planess been able to do this at cruise speed without engaging after burners it is still to this day unless there are classified programs we dont know about the highest and fastdishumans have ever flown without rocketpropulsion yes， OK， so how are you gonna do this？
the only way you can do this？
in a jetpowered plane is to essentially design something that can run with after burners on all the time like theyre not after burners theyjust burners its how the thing goes to do that you are required a tremendous amount of fuel and be you also produce heat in doing so thats like rocketlevel proportions the skin of the airplane gets to five hundred degrees Fahrenheit the area near the engines on the air free itself gets almost yes， and the engines i think inside the engines get to close to three thousand degrees i believe so they had to build the whole plane out of Titanium to make this work。
which was a metal that no one had ever built a plane out of before right？
this is really funny there wasnenough Titanium in the United States to build all these blackbirds or raw Titanium that they could easily source there happentobe mindssomewhere else with a bunch of Titanium， so the government and lockied setup a bunch of Dummy corporations in Europe。
like Europe in incorporated Dummy corporations yes！
and they source a large amount of the Titanium that goes into the blackbirds， the eight twelves， and then the blackbird out of the soviet union！
uh too funny and by the way， you cant machine titanium with regular tools right， titanium is so hard that it will damage your tools so they had to machine new tools for the blackbird itself out of Titanium in order to manufacture， the Titanium plane feel like its like a diamond cutting facility or something totally and i think traditional materials like aluminum would lose its strengths around 30 degrees so like you actually need a different material otherwise， the whole plane would just dissolve when it got that fast amazing， so theres another funny thing here， which is metal expands when it gets hot and normally， your airplane materials dont get that hot， because youre not going that fast so its fine if the metal expands a little bit accept when its getting this hot， the panels， the skin of the airplane is going to expand quite a bit so that means if they expand a lot， you to leave a lot of room so how do you leave room so what they want it to do？
is fit together really snug while the plane is flying which means the panels have to fit together kind of loose when the planes not flying？
then are you telli me that the blackbird had panel gaps？
the blackbird had panel gaps and to add insult to injury there a variety of reasons they decided not to have custom fuel tanks they literally just made the skin of the aircraft the fuel tank itself so you dont need sort of multiple， you needed it to be late and you need it a lot of fuel in there right and so when it was on the ground after you fullit up， because theres gaps in the fulltank， it would just leak fuel walle it was sitting on the ground so to solve this problem they went to shell and had a custom fuel created for it that was not flammable on the ground like you could smok a cigarette next to it it wouldnburst into flames because after you feel the singbefore。
it took off its just gonna leak feel all over the tarmac oh my god this is what other isns why um this is maybe spoilling it a little bit to flash forward there force hated operating these things yeah， i mean it cost i think three hundred million dollars a year just to maintain these things these were beasts from hell in every sense of that phrase， the good and the bad yeah， OK， so thats some of the materials challenges another problem was on the engines so the most advanced jet engines in the world at the time was the pattern Whitney J58 and i believe actually， they wereneven able to get the J58 the first eight twelves and then only later in the Blackbird did they put it in and we should tell people the Blackbird the sr seventy one was the two Seder Airforce version of the single Seder 82 CIA airplane yep so even the J58 couldnt produce nearly enough thrust on their own to get to and sustain the mock three plus speeds that they needed to hit spec in fact at least， according to Ben rich in skunk works， they could only produce about twenty five percent of the thrust required so Ben leads a team that engineers the spike inlet system so if youlooking at a blackbird and you look at the engines， theyve got these like coins and front these spikes these big spikes i mean im sure everybody listing has seen a photo of Blackbird if you live in caddle！
go to the museum of flight theres handful of these at various museums around the country you owait to yourself if you have not seen one of these things in person！
uh its just one of the most amazing objects ever created ever but these cones what they do so the engines get the thing up and then once its up in here the cones expand and retract first suck in and then compress and then superheat massive amount of air that they then mix with fuel in the engines an ignite essentially this is the worlds most bad as super charger ever create these things are supercharger thats what they are the spike system is a supercharger for the engines it provides threequarters of the thrust needed to get to mock three plus and sustain it on believable obviously davenire fanboying this thing its really easy to feel good about this airplane because it also never cared guns it only carried cameras you couldnt shoot bulletout of it because uh its fastest in the bullet right！
but they did consider i think Kelly in the scunk works team were really avocating to build a tactical aircraft that was based on this or bomber， and that never happened so every version of the SR31 or there early prototypes of the Ark， Angel or the cias by plate there only ever badass airplanes that carry cameras and go really fast yeah yeah！
so fortunately you know Scott corks in the cia had started working on the a twelve card before Gary powers was shut down it takes believe quite a while to engineer this beast they start testflying it in April 162 of course， at area 51 where else they get to do this once they start testflying at thats when the airforce finally gets interested in the project and is like oh， we want our version of this and thats how the blackbird comes about a funnel a bit attribute within the airforce and the pack the project originally was called the RS71 yes！
not the sr and the SR710 strategic were conisense， but it added up being backwards yeah！
so funny it happens because president wenden Johnson actually announce to the existence of this thing in a national speech and a during the speech he calls it the sr 71 instead of the rs theres subspeculation that it wasnt that he messed up and made a mistake but that his speech writer wanted it to be called the SR71 intentionally modify the speech who does what is relevant though postcold board politics become a huge thing here so once Johnson says this nobody is willing to contradict the president so skunk works has to go and like redo all of their documentation for the whole damn thing you can imagine Kelly johnsons reaction to this yeah so the first official flight of the Blackbird happens on December 201964 it reaches a topspeed of mock 3 point 4 god the airplane winds Kelly his second Collier Trophy i mean still to this day people lose their minds over this thing i mean its stunning it i believe has never been shot down there i were some accidents in test piloting。
but yeah never been hit by an enemy i think it took four years to ever even be detected by Radar for the first time all the way until 1968 it has played roles in surveillance in Vietnam Korea airbis real conflict in the seventies obviously the ussr they stuff you can find out there on the internet obviously nobody really knows but supposedly according to internet lower over 4000 missiles have been shot at blackbirds and none of them have ever hit it is just such an awesome bad as thing to say the way that were gonna get around getting shot down as just to be faster than the missiles and be right about that its especially awesome when you know as you know the highest level so the government its kind of all a decoy anyway， youre getting whatyouneedfrom othersources man so this is a good time to talk about that you keep saying that i had no idea until you brought that up what an hour ago i think youre right yeah！
well， heres one area where im wrong i do think that statement is mostly right， but you could argue with it and people do and did in that satelates are not real time you know when theyre coming， you know when theyre about to fly over if you need to instantly get somewhere that maybe you dont have the right orbit coverage for or where theres a dynamic situation if an enemy knows that a satellite is flying over it， and doing reconicence they know when the satellite is gonna fly over， so they could hide stuff during those times if you need full flexibility， you need a blackbird， so it does have a use its not like its useless but unlike the you two。
which was everything its more of a net to use case here so the blackbird doesnt fly today civilians are unaware of something that has flown faster theres a crazy stat a little busintribute about the SR71 and this really puts in the context， how earlythis was and how strange it is that weve had nothing faster sense the SR71 first flight was closer to the right brothers then today yeah wild right its totally wild and i mean this whole thing was built with slide roles i had a very controversial tweetget a community noted where i said that it was before the invention of the desktop calculator its like mostly true， theres technicalities to it， but you know Kelly and team basically did this thing independently of computers in calculators and figured out all the unbelievable aerodynamism stuff about it of course， theres also its the first stealth airplane i mean thats the other thing that we didnt talk about is the reason this thing wasnt detected on radar for four years because they figured out how to fly and start to evade radar yep now i dont know the details of stealth with the blackbird i imagine a big part of that was the height， was the altitude in the speed of it its not that i dont think its more around the shape because radar will just go unimpeted you know out into space theres a fame stories about detecting where peoples raid are transmitters are by bouncing them off the moon and figuring out the patterns of bouncingoff the moon it more i think that the SR71 sbottom was one of the first airplanes with a flat bottom rather than a rounded fuselage and so imagine im shooting a set of waves at around sphere in front of me well， some of those waves are gonna bounce back because some of that sphere is exactly perpendicular to me broadcasting it theres one particular point thats exactly perpendicular and im kind of tellthe radius of the thing by how im detecting waves that are bouncing back at me but if its all flat theres only one very specific angle for which i can shoot waves at it where im perfectly perpendicular and every other angle that i shoorade are at it its gonna bounce off and not come back to me as a transmitter youd need transmters coding all over the earth to figure out where all those waves are bouncing and so by making the bottom flat they made it so that if it was truly flat。
then theres only one exact moment in time that a given raider transmitter is useful ah thats cool they also did a whole bunch of work around making the rivits exactly flush with the skin so it basically didnt have a whole bunch of rounded parts that could risk bouncing Radar waves back at the transmitter receiver super cool keep in mind for a minute from now that idea flat surface in plains in radar uh planes not airplanes planes like a flat plane and uh services OK to close out on this amazing airplane have basic and sad it a lot of ways its huge Ely expensive to build these things thirty three million dollars per plane， which was a lot faced and played style cost more but a lot and then as i said three hundred million dollars a year just to keep the operational and run the program you couldnt use it as a fighter， a bomber it was only reconnosense its not super popular with the military and the air force they kind of dont like it as an operational plane right its a lusty airplane yes， its not a daily driver letput it out it nineteen seventy the pentagon cancelsfurthersand they order scunk works to destroy all of the titanimtoolling forit so that no more can never be built i assume thats。
so that it doesnt fall into enemies or something like that and its like were serious about telling you were done ordering these things and we dont want political maneuvering to spend a backup。
so were going to be prohibitively expensive for you or for anyone to ever think about starting the program backup yep the existing ones do stay in service but obviously this is like a big blow to scunk works revenue uh theyre not producing these things anymore on the back of that skung quirks has to do layoffs this count quirks division after the contract is canceled in 172 years later lockedence gunkworks lose the bidding for the F16 fighter general Dynamics winds that ironically the later lockied right before the merger with lockid Martin would acquire general dynamics fighter plane business so it does come back into lockid and it is still they call it out in there earnings like today theyre still selling F16STODAY so herewhats interesting about this contract unlockheed and scunk works losing it this is an example， i think of to that first tenant from lmsc of thretbased need and real you know need market need you maybe you want to adapt that to Kelly Johnson as amazing and a genius as he is is a very stubbornman and the stated purpose the air forces goals with the F16 was to have a cheap fighter it didnt need the best it needed to be cheap and that they could make a lot of these and they could use them all over the world thats not Kelly zemo and so he and scung works bidding on this project they kept trying to give the air force what they didnwant and they lost like the idea of scunk works losing a contract this is crazy and in particular he didnreally want to play balltheway the government was trying to bit out the contract he looked at the requirements he said this is stupid im gonna design you an airplane that i think meets the needs of how this will be used in the field rather than what these technical specifications say here and over the longrun he was right as the program evolve the specs actually changed to what Kelly decided to build their prototype airplane to do， but the prototype they produced was not inspec for the original F16 requirements and by this point in time to bring some context back of where the country was you know， were now basically， post vietnamewar the culblwords for sure still going on。
but its not the same level of urgency in Americans binds as it was back in the fifties not to mention all military muscle is very unpopular in America and so any politicians， who are seeking the sort of expand the might end budget and proactivity of the military are facing a lot of resistance at home and that is probably a good thing for our society that that was happening and at the same time it made Kelly kind of a relic yeah！
totally and this is not a challenge that lmsc at least with the Corona project had to face because nobody do about it right， so this is a really bad time for lockid this is the period like we are talking about at the end of the lmsc chapter where its lmsc the keeps the company of float Kelly retires Kelly retires bedreach takesover as head of skong kworks skong kworks is doing layoffs lockied really stupiddly decides to try to get back into the commercial aviation business l ten eleven they make the l ten eleven which by all accounts was a great airplane， but turns into a disaster project theyre trying to compete with bowing and with Mcdonaldouglas here the dc ten i think was the Mcdonaldouglas competitor lockid Partners with roles roice to make the engines right as roles Royce goes bankrupt and gets nationalized by the uk government， all told we wongo into the whole history here but the l ten eleven airliner project loses lockid two and a half billion dollars， and as we said a few minutes ago this is not a super profitable company they dont have two and a half billion dollars in other earnings to sitting around socupthelosses here yeah at the same time lucky to also gets caught up in really nasty bribery scandals around the world， but these are nasty political scandals themselves and basically lockied comes out looking at least to the American public like kind of a corrupt arms dealer， so what happens is you know lockied and lots of people would argue that this is just the way you needed to do business in farin countries are Alice that blockeads sold these weapons to in the Netherlands in Japan and in soudy Arabia， it comes to light that locked employees in contrackers are paying bribes to political officials to win contracks this actually， brings down the Japanese prime minister at the time whoa this is a huge scandal in Japan on the order of like water gate in the us huge scandal Sega actually makes an arcade game about it called im sorry about the prime minister of the time like so funny lockid also on the military side kind of the main locky divisions engage with a couple helicopter projects with the military and then the c five galaxy transport play and those projects go horribly they have huge costoverruns the C5 at least， i think does ultimately become a good airplane， but costway more than the initial bidding all of this conspires that especially post vietnameperiod the American public starts to view lockiedas this corrupt vampire octopus military industrial complex squid sucking on America uh things get real bad lucky sfinances at the same time are so bad they need a bail out from the government， so the government has to guarantee a two million dollar alone to locky to keep them afloat mostly because of the l ten eleven disaster， it requires a vote of congress to do this it almost doesnt pass this is real bad hmm i didnrealize how dark it got there it got real real dark and again it was only the prophets from lmsc that kept the company from probably going under hmm so okay！
we mentioned still the few times here back to scunk works there is one more great skunk works airplane and it is under the admustration of Ben rich Kelly successor one last hera at least for the traditional scunk works organization so there is a math paper published in a Russian journal around MID 170 right around this time， which i think gets published because the Russians dont really see anything of value in there they dont really know exactly what these particular equations that are getting published could be applied toward but somebody at the skunk works reads the paper and says huh i think all the ways that weve been thinking about trying to make an airplane stealth like the SR71 with flattening the bottom a little bit and trying to use particular materials and paint and stuff like that i think is good but if i apply these equations to make a stealth aircraft， then i think we can do something to orders of magnitude better than anything weve done before and i think we can make an airplane go from looking smaller than it is like a bird on a radar to something like a bb on a radar or a ball bearing famously or a ballbearing so that skunk works employee was then thirty six year old Denis overhalser who uh was a mathematician and he like he said readsthispaper and brings it to benrich who just six months earlier had taken over from Kelly as head of scunk works and hes told dont stick your neck out no ones getting the crazy amount of rope that Kelly had so prepared to just be blockeads yes， man and were gonna use the skunk works for branding and marketing but were not doing anything to nuddy in your little shop over there and even Kelly himself hesretired but he stays on his anvisor so hestall has his fingers and everything hes so disolution did this point he tells benrich he says dont even pursue this its not worth that missiles are where the future is nobodyesmake plains anymore dont invest the money on this and in particular because when you apply these equations to design an aircraft the way you have to design it makes it incredibly not aerodynamic if it works， it will be a thing that is invisible on radar but Kelly sort of looks at some of the earlysketches of what you would have to do to make this thing about an airplane basically things thats not an airplane that wont generate lift hesuch an astaticsnob hes like thats not a airplane we cant make it it doesnt look beautiful and its not just that it doesnlook beautiful its that literally thereislike only a hint of bernewlien there the way that its shaped is unclear that it will generate enough lift to lift itself yes！
also correct or what i think the bigger problem was less about lift？
although ive sure that was a problem but more about could you control it？
yeah could you fly this thing so whatbeingproposed here is basically an enormous looking cockpat this big globular fuselage and you can Google the F17A the name is the nighttalk dubby wings these two little superthin tall tailfinns it looks super unstable and the whole thing has basically zero roundsurface on it its faceted i mean it looks like a diamond in fact its codename or i would say friedout its code name but its nickname internallywas the hopeless diamond yes！
you know what this thing looks like if you arent i intimately familiar with images of it i actually think it looks really cool totally but doesnt look like get a fly or fly in a controllable way it looks like you made an airplane like a paper airplane and then you put a a rock on top of it and youre like trying to get that thing to fly totally to me it looks like the planes in the first star fox game for the supernintendo when then Tendo another sixteenbit game developers during that generation were trying to make 3D Games with sixteenbit hardware and you didnt enough processing power and poligal power to make rounded shapes see i dev flat services the biggest triangles biggest triangles thats what this thing looks like it literally looks like a not a starfox， 64 a star fox super Nintendo plan right so Ben rich decides that he wants to put his career on the line yeah and take a risk and make this so we goes to the air force theair force says well， it on the one handler timing is good we actually also think stealth technology is worth pursuing we have an active rfp out there we didnt come to you guys cause skunk works hasnt made a fighter plane and god knows how long you guys just had layoffs we dont like the blackbird sorry you guys are old news and Ben rich a he like you said he risked his career six months into the job pursuing it at all he risks it even further he goes back to lockied corporate and says i wanna pursue this and make a prototype anyway， without a research contract were gonna fund this internally？
which this is not something that defense contractors do no wetalk about this as we get into playbook， but its not like a tech company where you do a bunch of forward looking rnd and then amoratize it over a bunch of customers later you go bidona contract you get that contract and then you build the thing its so funny either reading lets so in the earlyhistory but when you read about lockied today and the industry today？
theres all this talkofthecustomer the customer theres only one customer the dod the dod is the customer you did its like they have is on like oh， the mtc for the customer in the room its not a metaphorical customer it is a specific customer no！
its like what is the pentagon think which is a good， new， bad theyre unbelievably customer focused lockied Martin doesnt build stuff and less the us government says ill order it。
which means they dont take a lot of risk but on the other hand they also dont get the upside from taking risk typically and this is how crazy this situation is it is literally the opposite of what you just said this is Ben rich is neck on the line this is scunk works on the line this is everything so they go on they build a prototype its nickname to the hopeless diamond the code name is have bluehaveblue and i mentioned ball bearings earlier they make a model this thing a wooden model they put it up on a poll they tested in the radar range， alongside the other prototypes from other contractors for a stealth fighter that the pentagon has put out and this thing is invisible the way that the air force inspectors come up with testing it is they get a set of ball bearings of increasingly smaller diameters， and they attach them to the nose coneofthe wooden model at the radar range and they see if you can detect the ball bearing or if its blackout by like this massive flyin model behind it and they can detect a ball bearing down to a diameter of an eight of an inch so the rain are signature of this plane is less than an eighth of an inch sphere its unbelievable the thing is all flat surface so it basically bounces the Radar everywhere except for the transmitter receiver that is actually shooting the radar waves at it so will it fly and can you control it or still open questions but we now know that it is like oh my god right are invisible yeah so out of that the dark course skunk works wins the contract to build the airforce is stealth fighter they do they solve the challenges you just mention and they solve them with computers for the first time or least that we know of really the first time in scung works history thewayyoucontrol this thing is withfly by wire， which iheard that term before， but flybyire means that the planes systems are controlby a computer and when you move the controls as a pilot， youre not directly moving the mechanics the computer decides how to translate your intentions into stabilized movements for the playin power steering exactly was yeah， its even more than its like doing all sorts of stuff that you have no idea right to make it do what you want to do right i mean its a Tesla basically its abstracting away your inputs and doing the thing that is optimal based on what its pretty sure your inputs want it to do yeah so they win the contracts they start testing this thing at of course area 51 and the selffighter really looks like an alien spaceup， so like i dont blame all these people with the binoculars who are pretty sure theres aliens i dont blame a reader the air force starts taking delivery in nineteen eighty three of the stealth fighter from scunk works they ultimately by fifty nine of them of the F17A nighthawks 43 dollars each， so that is two and a half billion dollars in revenue for a lockid a time when they desperately needed it and skunk works desperately needed it huge winforban rich huge when the real combat debug for the nighthawk is during the goal for during operation desert storm so thats what sixyears that they keep it undeployed or they have it but the us government is decided that we want to save it what where they gonna use it or not really fighting any wars and this is a fighter this is an areconisis plane this is a fighter slash tactical strikeplane， which against works hasnt one of those since i guess what the one of forstarfighter i think thats right i mean yeah the f in F17 is fighter the SR71 was not an f plane so the plane is never really tested in combat of what it can do until operation desert storm and i remember watting this live when this happened i dont have you remember this Ben but i vividly remember when this happened the first night of the war operation desert storm i mean this is broadcast live to the world the us airforce completely knocks out all of bad dads defenses。
an infrastructure and the way they do it is with the nideaux they came in under the dark of night no one knew they were coming they hit a bunch of the high value targets and then these words now attend to be these overwhelming force at the start and then long long drone out battles after that but this set the stage for what the modern military engagement looks like yeah！
so a few quotes here that are in skong kworks first from the secretary of the air force at the time we learn that nightthefirst night of the goal for and for many nights after that that stealth combined with precision weaponsconstitutequantum advance in air warfare ever since where were two when rate are systems first came into play air warfare planners thought that surprise attacks were rendered nullen void and thought in terms of large aremodels to overwhelm the enemy and get a few attack aircraft through to do damage now we again， think its small numbers and in staging surprise surgicallyprecise raids and then uh another quota here from one of the pilots that flew that night to put it in domestic terms if Baggdad had been Washington， that first night we knocked out there whitehouse， there capital building their Pentagon， their cia， their fbi and took out their telephone intelligence we damaged anges air force baselingly emboling， and we punched big holes in all the key patomic river bridges， and that was just the first night， so this thing is deadly the nighthog very much worked the nightalk flew 1 percent of the air missions in desert storm， but accounted for 40 percent of all damaged targets and so well。
this plane was a massive success for what it was intended to do this is where i sort of want to stop glorifying the some of the military might the way that we did in the cold war， which was like obviously for detorrent this is when the form policy sort of changes a little bit in the way were your yeah people are dying here yeah！
this is the incredible paradox of this the most overwhelming and terrifying weaponary ever created in weaponscapabilities ever created was never used and was created so that it would never be used right its fascinating yeah， totally！
but here this stuff is used in a lot of people died for the F17 a ten thousand people worked on this airplane the night hawk and kept the secret for twenty one years until it was dclassified wow！
crazy yeah， those just divorce setting value judgements here for the moment in terms of the airplane itself and lockied and skunk works in the company， whiledesertstorm was on the one hand this great success story for the airplane， theres also kind of the end thats end of the cold war yeah， there is no doubt after desert， storm and all the other things that happened and the followingwall by the early 冬 id 90 its done and this success of the nighthawk and successof the us military from the military standpoint during the golf for you know that sets the conditions to bring us to the modern era and lockied today， which is not locked but locked Martin and bowing today？
which is not bowing but bowing and Mcdonaldouglas and this incredible error of consolidation right and northern？
which is not northern but northern gremin and which very closely almost was part of lockid Martin but got blocked by the doj yeah and then you have rathion in general dynamics， which have eaten their fair share of all the other competitors to so the golf conflict to think ends in 91 i believe and it becomes really obvised that the cold board era of arms buildup in the us is over and defense budgets are gonna shrink massively and we need to start nuclear disarm in we need to start destroying a lot of the nuclear warheads that we build right and everybody in the industry knows it and then it becomes superexplicit this is kind of an amazing event that happens in July of nineteen 93 the then deputy defense secretary William Parry callsthe cos of all the major prime defense contractors to a dinner in Washington at which he explicitly tells them defense spending is going to shrink massively do you know that and he instructs the ceos present that you all need to consolidate and start merging with one another we the defense department are no longer going to be able to feed all the metaphoricalmalthes at this table and the ceo of then Martin Mariada soon to be lucky Martin refers to this dinner tongue and cheek as the last supper and indeed it was and this is an amazing event literally。
a government agency just told an industry what to do this doesnt happen in America very explicitly and this was rumored for a long time people were like we did this really happen the us government instructed these big companies to become anticompetitive to all merge together and this 193 thing really kicks off an era of intentional government policy are round combining companies yeah， which is very odd American industry and i think as we saw during the cold war era America functions on competition and thrives in competition then here the government is saying less competition and in part theyre basically saying look its acknowledgement that a lot of the times companies thrive because theyre in growingmarkets and this is now a shrinking market and so what do you do if you want to maintain americasmilitary industrial base but you know for a fact， the market is drinking this year and likely every year for the next decator to like what do you actually do and so i think the intent here is to say we dont want to lose capability we want the us to remain a country that has a whole bunch of people that know how to build this stuff so if we need it， its there， but youre gonna put each other out of business because we just wonhave enough for you so you need to like merge and get more efficient so we dont lose the muscle but you know you all have real businesses， real goingconcerns and this whole like so you dont lose the muscle thing that is unique on this episode versus any other episode because the government is a indifferent player inalmost， every episode of every company that we talk about but in this one。
theyre an extremely interested party word is in the national interest they are the customer right it is in the national interest for us to maintain this capability or so thats the sort of policy yum so this sets off an amazing series of events kind of similar to um targeting back to the avia made episode when Louis on in what hennessy merged， not cause they like each other or cause there was a business reason they merged for like practicalities into avoid dying and getting taken over by hostile raiders in 193 lockiedbysgeneral dynamics fighter jetbusiness that we already talked about the F16 business and then in 1994 the big shoe drops they announce a quote merger of equals with Martin Mariada that goes through in 1995 except they didnt merge everything about theres two spinoutsofthe lockymartin combination one is theres another set of things that Martin Marieda does around minerals and mining and so theres literally a Martin Mariat？
a company thats publiclytraded today that still exists thats around mining raw materials do you know this？
because you look up the mindsafety disclosures i was disappointed to see there are no mindsafety disclosures in lockied Martin financiels theres another thing that spins out called L3 Communications， which is oh yeah the set of things that wont be combining into lockid Martin， and this is actually become a fairly formidable competitor today， theres the five big primes， lockied Martin， Bowing， rathy on northern grammen and general Dynamics and L3 is kind of growing， which is fairly unprecedated in this era of primes but you might be saying what is the l three？
well， there were three ells involved in creating this company one of them was the investment bank that helped combine them we men brothers yes， Frank Lansa。
Robert Lapenta and Layman Brothers are the else so the assets the domerge of lockid and Martin in January 199 shortly after the big merger goes through they， then acquire the defense business from loral for almost ten billion dollars， and then as we said a minute ago in July nineteen ninety seven they attempt to merge with northern Gremin right？
this is like Lockey Martin sort of like looks at the dod and theyre like are we supposed keep going yeah like you told us to do this right？
yeah they misread the tleaves on that one that merger gets announced to every signed off the dojblock set i assume with tacit approval from the dod on that yeah i mean that thing with the five big prims is theyre all like very good at a certain bucket of things and so if you start combining lockid and northwrap。
which are the two that really kind of like bit against each other at this point in history， i mean like the b to bomber and the b twenty theres often this faceoffbetween north binlockid if you combine them。
then you actually do way with all competition yep would have been so fitting right given the north thrift was a co founder uh locking to fit all the way back to the beginning of the episode so the dojblox that but also， in 1997 boeingmerges with Mcdonaldouglas said becomes the giant that it is now do you know why that happened oh！
i do not so were going to talk here in a second about the F22 program and the F35 program will skip over the F22 for the moment just to hit this point for the jsf the joint strikefighter F35 program this is gonna be like the biggest ever military contract and so its really worth going for and theres three companies theyre worth done in forin the mid nines， there is lockid Martin right after their combination， theres Boeing and theres still independent McDonald， Douglas and Mcdonaldduglis is eliminated from competition so it just comes down to Boeing and Lockheed as the two finalist within a month bowingannouncesthatspying mcdonaldouglis yeah！
that was probably the end of mcdonaldouglas once they got eliminated。
exactly this contract is so big and they were bedding so heavily on it that basically bowing a McDonald Duglas after Mcdonaldouglas loses kind of need to just combine and size up in order to be a formidable competitor to lockid Martin going forward do you know the size of the F35 joinstroke fighter program like in terms of dollars i do it is a thirty billion dollar dod contract for 398 airplanes just for the us well talk about that aminute but it was a prize worth going for so yeah if you lose this contract？
this is literally life or death whether you get this or not right so losing this create some extreme combination and obviously this sets the stage of enhanded over to you at a minute to lead the discussion of all the Dynamics around this the military industrial complex and defense contractors today but to set the stage i have a few quotes from normaugastein who was ceo of margmariada， but the mergerhappens and dan telup the covelake it is the first co of the combined company dan came up through lmsc started there work to lmsc for decades and became the sea of lockid hes the first co， the combined company and then norm takesover for a few years after that 1987， norm is a characterhesaserious character he writes a harvr business review article i want to read a few quotes from this following the last supper， which he termed it the last supper it became evident that there were only two potential survivalstrategies one was to move into new markets hesmeeting commercialmarkets a difficult endtime consuming option that has rarely succeeded and as we talked about definitely lockied try that in the seventies and failed busiably with the l ten eleven theother strategy entailed something almost as difficult increasing market share in existing markets during a period of severely declining businesses da this were talking about he says he should have it he does lazedall out here lockied soon purchased general dynamic aircrafbusiness and Martin Marieda purchased general electrics aerospacebusiness alldarecompanycomprises 17 previouslyindependent entities like independent until recent times as hes readingthis， general dynamics， Sanders gold ocean Systems， GE Aerospace， RCA Aerospace， Zerox Electro Optical Systems Goodyear Aerospace， fairchildweston， Honeywell Electro Optics for the Aerospace， librscopeibm federal Systems unicist defense Lockid， Martin， Mariada and Loral what are frankencompany as weve been alluding to these were not very profitable entities so lockaid at the time of the merger did thirteen billion in revenue and only four hundred and twenty two million in Nedancom， Martin Mariedo was slightly more profitable did 9 point 4 billion in revenue and 450 million in that income so both of these are like ten percent or less netink margins yeah！
and you basically have a situation were like all these contracts kind of go to all of the contractors they just rotate around whos the prime on it and the prime makes the most money and then it has the most sort of sway and you dont want to be with the subcontractor you would rather be the prime contractor but still this current military industrial complex is very all five players are basically in on all the big contracks and the governments very aware of that and the companies are all very aware of that and sort of reached this status yep so Ben rich basically called it in nineteen 92 when he was talking about this at the end of the skong worksbook about the end of the b to bomberprogram， which by the way the b to was kind of a makegood when they gave that to north of Gramon， this is the selfbomber yeah by all means that should have gone to lockid Martin they have the expertise from the F17A Nighthawk and i mean this is the Lockheed started the story but they beat the beat two in a lot of the early competitions but the government still gave the award to northern cromen because there was some particular plane that the government said northern could manufacture a bunch of and then sell internationally and then change their mind and so that northern sort of left holding the bag and so is a department of defense being like alright， you can win this competition and who knows of any these things are true thats lockhedside of the story but anyway， Ben writes under the current manufacturing arrangements for the btwo bowing makes the Wings northortmakes， the Cockpit LTV makes the bombays and the backend of the btoairplane in addition to 4 thousands subcontractors working on bits and pieces of everything else because the tremendous costs involved， this is probably a blueprint for how big expensive airplanes will be built in the future forbetter forworse this psmel manufacturing approach rather than the skunkworks way will characterize large aerospace projects from now on with many fewer projects the government will have to spread the work around across an evenbroader horizon what will happen to the efficiency， the quality and the decision making at a time of maximum belt tightening in aerospace those are not just words， but may well represent the keys to accompanysibility to survive yep so i think that sort of 1992 Ben rich publishing the skunkworksbook then the last supper it basically works the end of skunk works skunk works is still a term that is used to describe a part of lockid Martin， but is it the scunk works of the fifty sixty esno not at all its a completely different thing an airplanes are just not built by small teams in the sort of auto are way the way that they were in Kelly zera， so lets talk about some of these huge programs that these large fleets of planes that the us government has bought in recent years and westart with the F22 and this gives you a sense of how freaking long these time frames take so in nineteen eighty one， the airforce identified requirement for an advanced tacticalfighter to replace the F15 Eagle NDF16 fighting falcon so that sort of kicks off this were going to need some future thing in 1985， the initial order i dont know its technically an order or how it sort of changes over time but the initial sudo commitment is for the us government to buy 750 planes of what becomes the F22 Raptor for 44 billion dollars in the total program cost wow that gets revised down again an airplane has not flown yet just before nineteen 97239 planes thats going from seven fifty to three 39 for 62 billion dollars in total program cost that cost went up even though the number of planes tramatically went down to like half i was wondering i was like to bed my speakthere in nope then the F22 program is over there was a big thing in the Obama administration were he basically said im a veto anything that comes to my desk for anymore raptors like were done with this， but its not as good as it sounds now its not as novel the final downfrom seven fifty to three 39 is 187 planes delivered they kept the sixty two billion dollartotalprogramcost fixed theymanaged to do that what so each plane ends up costing 300 and sixty million dollars if you amoratize all the rnd against the very few airplanes that they ended up making and now i mean the F22 much like the SR71 theres not much we can complain about the plane it is a bad as plane and factforc fair adhere and caddle the last few years theyve had enough twenty two it is an unbelievable thing to see live it performance maneuvers that just look alien i mean you just dont understand how the physics makes it work it was all about air superiority it was all about speed they took all of these stealth lessons from the F17 and putted into a very fast air dominating airplane so the stealth fighter the nighthawk was angular and looked like a supernintendo star fox plane because the con computational ability to model it at the time it wasnt that you needed to have just flat services its that you could have three dimensional rounded looking services you just needed be able to model it for the radar signature and computers werenadvanced enough at the time to be able to build A3D modeled version of a radar stealth structure as they advanced you are now able to do that in much the same way that in video games you can now build lifelike looking 3D models out of the same polygons before and so the Sega i think it was the model three arcade board yep that we talked about that was part of the real threede revolution in video games they used it in the arcade cabinet right these cutting edge better than home consoles yeah computers！
Virtual Racer， Virtual cop， Virtual fighter beingthe big one were on that Sega code developed Martin in order to model the stealth airplanes yes！
unbelievable that is insane so fun so what we can see here is the sort of the classic， modern bondags pre the wrong word but program gone array where theres a sensibletotal program cost for making a lot of airplanes and then as theres more pressure on the budget over time and theres cutbacks that happen you end up making lesson less airplanes and so its really hard ameratize all the rnd cos， and becauseof the way that these contracks work its not the tech company thats left holding the bag its not the contractor holding the bag its totalcosplus modelthe company the contractor lockhe doesnt take any risk and so whos holding the bag the governments just pay more for each airplane rather than you know you could imagine ify was a apple and i sunk a billion dollars into developing the next great device that no one bottom im out a billion， but in this scenario， the governments like look i told you id pay that much im paying that much and unfortunately， i just cant spread the rnd across as many units well its the rnd。
but also the toolling like we were talking about with the blackbird totally， the infrastructure that you need to spend up to make a new airplane is a lot right following band riches sort of hey！
i think this is how airplanes are going to be made in the future this happens in 46 states。
the F22 is built in 468。
yes and requires 95 thousands jobs， which in some ways is good gets good to employ people inotherways， the reason that some of these projects get funded is becauseit creates these jobs and the reason that its in 46 states is because that way basically， every member of congress is incentive to vote for it you talk it about pork barrel politics exactly so i think lockit is become world class or understanding where there bread is budded yes， their customerstheus government， but the people approving their funding are individual people these members of congress who all want to get reelected and so lockid spreads all these operations around they employ all these people and members of congress love nothing more than creating jobs for their constituents and they hate nothing more than participating in a vote that eliminates jobs and so congress can converbe simplified to five hundred and thirty eight principle agent problems and contrast that with the team of you know what fifty engineers in a hundredmachine is the built the you two yeah of course， the F22 is a much more advanced airplan than the you two but the size of the engineering challenge relative to state of the art technology was way less than the size of the YouTube engineering challenge relative to state of the art technology yep so then theres next program that comes along the F35 lightning to the joint strikefighter and so you know the mindset here is well we finally get it we need to make a lot of these things if we gonna make a big investment the government sort of pulls its resources and the dod sort of works across the arm services and they reach out to all of our allies brittinganothers and they say whats like a common platform that we can develop so that we can get the best economies of scale out of this thing thats the right thing for the American tax pair and so they come up with this idea for the F35 lighting two and theyre gonna make three models and each of the models are for a different purpose its this incredible piece of technology one of three models connected angle its engine down and takeoff vertically using its engine to reposition i dont think they can use this in combat， but they can like use it to move itself around on an aircraft carrier and stuff like that its pretty incredible to watch videos of it if you just go search on YouTube， it interestingly has a different aim and mentality than the F22 its less about being sort of the fastest plane in the skies and much more about having the technology and the visibility to have the best information at all times its sort of looking to the future of information based warfare more than pure air superiority and speed its not all the way to like a drone future or a Cyber security future but you can see it drifting there really intense communications between a wholesquadron of fighters intense heads up displays with digital stuff for the pilot in the cockpits and their helmets， and so its sort of like the most technology forward plane program ever so when i say big， i mean really big in terms of the number of orders that are going to be placed the initial order book is approximally three thousand airplanes worth a potential two hundred billion dollars for the total program cost well in practice， its kind of as pork barely as the F22 lockied on the contract， but you know， its subcontracted its peanubudded out to all the other big programs to the fuselogies northern cromen baa systems from the uk makes the rear fuselage these pieces are shipped all over the globe before final， assembly so weve sort of expanded it even from pork barrel on the us to like whichof our allies can participate in making this thing and us benefitting in there area to so heresome of the stats from lockids twenty twenty two annual report the usais F35 order is a thirty billion dollar order just from the us thirty billion dollars thats three hundred and 98 airplanes that a 750 million dollars per airplane the Swisse have placed an order for six billion dollars for 36 airplanes Finland， but sixty four Germany， 35 Greece twenty the check 24 Canada eighty 8 pollen？
32 lockied Martin this is an enormous win to win this program and it is among us nr allies the largest ever purchase anyone has ever made for any piece of defense equipment its just so clear listing to you talk about that incontrastingit with everything we talked about in the story portion of the episode this is a different world than the lockead of World War two and the cold war and a military of World War two and the cold were like its very unclear to me what the threat base need is here for this well！
yeah hopefully detorents what i guess i dont know im not a military strategist but you know you mentioned drones druns are a thing now and theyre a lot cheaper yeah put opinion that for the moment all finish roundingout the national defense budget just to put all this in context of what lucky the sort of represents here so our national defensive budget in the United States is 800 billion dollars as you would expect thats more than any other country in the world， its three to four percent of our gdp we spend on defense interestingly， it is down on a percentage basis of when you think about like the percent of federal revenue spent on defense， itactually down back in the sixties， we spent half of our federal revenue on the military and in recent years， its fluctuated between twelve and twenty percent so i think thats a little bit of a counter narrative to people that like to complain about how much money we spend on the military why guess it is you know to the point of consolidation in the last supper the government was clear were gonna spend a lot less were just gonna spend it in a much more concentrated fashion exactly， the military industrial congressional complex has really its almost like whathappen of the banking system we like sudo nationalize a few companies there is these too big to fail entities that are like in cooperation with the government neither can really exist without each other， and we just are OK with that we say OK thats how the system works and forbetter for worse private industry and the governmentor tied at the heap there so a few more stats on this so that， i said in recent years， the governments do d or defense pending is between twelve and twenty percent the total us government budget is 6 lion dollars so defense in there at 800 billion clocksend is actually lower than social security， health care and income security wait you said it was three to four percent， its three to four percent of gdp 啊 budits 220 percent of the federal budget so OK， we know that of the sixtrillian dollar budget defense is less than social security， healthcare and income security it is more than Medicare， education or transportation just so people sort of know where it kind of sits there so of that eight hundred billion dollars about half of the defense budget is spent on contractors like lockid Martin and of that 400， thats been on contractors fifty billion goes to lockid they are the single largest recipient of federal spending as a contractor full stop wow！
not even just defense across all companies！
across all companies wow！
i knew they were the largest defense contractor， but i didnrealize they were the largest covermycontractor period yep lockied！
then bowing， then journal， then namex， then rathion， then northern， then mckeson， wow， you get to five before you even get to a healthcare wow， so you get that fifty billion that goes to locked Martin from the federal government how much of their total revenue？
do you think that is oh its got to be like 九十？
its close it tends to hover around 75 percent so uh sixbillion dollars was lockeads total revenue last year of which fifty billion came from the us federal government make sense and i get the rest i would assume we come from far in governments correct at your ls cause the us government basically has a role for on anything and can put the caibosh on lockid exporting to anyone its not terribly profitable there nedincomargin is 8 percent as wevensort of talking about the whole time you can sort of like see the cost plus pricing right there at the bottom line of the company lockty Martin makes a bunch of money and at the end they only have eight percent and thats basically contractually figured out i think whenever one of these contracks gets bid out the big defense contractor says im a slap eight nine ten eleven percent on top of it and thats gonna be the cost and that is exactly why there financial statements look the way they do is because thats exactly how the government decides to fund it？
which we should probably talk a little bit about the rationalforthat im no expert in this and uh we should probably have an economist on ack two at some point time to talk about it but my understanding is that while warned buffet and Charlie Monster heed cost plus contracks and in general they set up terrible incentives they are useful in cases where you dont know what the cost is going to be but its a incredibly important investment to make and traditionally that has been defense expenditures yeah， like we need the YouTube we dont know what the cost is gonna be， but we need to happen yep we need the Corona program we dont know what the cost is gonna be！
but we need it to happen and i think that is the rationale of how we get here but it doesnt make sense when the governments buying more modern things like were buying softwaresaservice， lets say im making slack and Ive selling that to the government if the contract to procure something that looks like slack， requires me that a bit on it in a certain way and im using slack theres lots of defense software you could sort of think about here pally or for example， how do you let the government put out a contract to bit on that structure the certain way when the way that youve decided to structure your company where you do rnd up front you willing to take on some of the risk and then you want to sell something in ameratize your rnd， across all of your customers the way that every tech company does in the way that you sort of get operating leverage on your company that doesnt fit in these gigantic cosplus contracks in fact， what it ensures is you cannot get operating leverage on your company no matter how large you scale you will never have big fat growth margins that outrun your fix costs its like the opposite of whatever tech companies trying to do right this is sort of the great irony and the government together with locky had really seated Silicon valley the modern so we can value and the modern defense industry are in many ways kind of imcompatible from a business model but right， yeah， someone told us as we were for ferring in and researching this episode that policier figured out that what they had to do was sell laptops to the government that came preloaded with their software so they could sell a physical thing that had a cost of good soul associated with it。
such that it could be bought in a costplus way and now i think this is probably changing and certainly there are smart people on the government that recognized this， and there pilot programs to be able to buy software in technology but if you look at some of the most successful silicon valley style startups that are selling defense to the government in a whether its Spacex or andual or others， the other selling hardware theyre not selling software solutions yeah！
its they were in the first out of the first ending and trying to figure out how to sell software to the department of defense。
which is sort of scary when you think about it because like i suspects you， the most acquired fans will not find this a controversial statement but i think its quite likely that modern more fair is going to occur more in software than in hardware just like the cold war， occurred more in capabilities than actual fighting yeah！
and its probably fair to say i didntalk anyone at lockied im not judging anyone who works at lockied， but i think the reputation in the industry is if youre a fantastic software engineer， youre probably gonna go to a more interesting modern company and thats why you see the anderals of the world and the polientiers of the world kind of sucking up top talent that has this as a thing that theyre really passionate about working on yeah theres also a huge difference now versus certainly world board two。
but also the cold board the motivation of people who were going to work as gunk works they were doing it out of patriotism for their country like the clear and present thread of the cold war was an extremely motivating factor thats not there in the same way today very different time we live in very very different or at least theres a perception that its a very different time that we live in i dont really know for sure if it is or not well， which is so funny about this whole thing。
the code board and now perception is reality nobody really new then and nobody really knows now what the reality of the threat is but the perception is what drives peoples behavior and thats what drives the economy it is in the governments interest for everyone to feel safe and secure and so you can sort of rise above mazzles hierarchy and do other stuff with your life and like create innovate and live happy prosperous， enjoyable lives and go to work and do things that arent for defense and drive the economy forward it is also in the interest of the country to make everyone a little bit aware of how we have this incredible quality of life in the us and i dont think were indexdone that direction even one percent i think as you talk to people theres a lot of reasonably oblivious， but well intention people who are like not willing to give the credits to Americas incredible military of why we get to enjoy such charmed lives in this country and a lot of people that want a like go out Ada we live in this amazing globalize wonderful world where no one needs to think about the military at all and youlike do you live on this planet i love peace as much as anyone and that should be the goal and also the default state of humans technology changes， human nature doesnt right unfortunately there are some set of people who want to like comment take your stuff and in the same way that prices set in a market by the person who is willing to pay the most the need for security in the world is set by the person whois most willing to come take your stuff and thats how much defense you need to have in order to stop them from coming in taking your stuff and hopefully you dont need to get into armed conflict over it but i do generally feel that there is a disconnect between people who enjoy the way of life that we have， but are unwilling to acknowledge why we have it and i think that is extremely different today than it was sixty years ago yes！
i totally agree with everything yousaying i also think theres another layer to this， which is really a huge theme of this journey with the research and doing this episode for me with lucky and that is the phenomenon of competition and its impact on human behavior probably for both the soviet union and the us although im less equipped to talk about the sovia union the fact of that competition lead to tremendous advances for society have indulthethings we just talked about silicon valiitself forgot six wouldnof existed without this so there is sort of a rational argument for having an adversary technology and society was pushed forward in America by the cold war and by lockid as part of that yeah well！
weve already done a bunch of playbook stuff so before we get into that formally codified analysis section lets just talk about real quick the segments of luckie Martin today so people understand like what do they actually do today so we talk about a lot of the stuff theres aeronodix， which in theorycontains skunkworks， so thats F35， F22S the old F16S the c one 30J Hercules airlifter the F35 i believe is the largest program generating twenty percent of all net sales across all segments well， like you said it is enormous right its 66 percent of 2022 srevenue in that eranotics division， so like aeronodics equals F35 theres also missiles and firecontrol then theres three rotary and missions systems， which contains helicopters， and they bought secourse key so it contains secourse key the other helicopter company， and then for a space， which includes the Orion capsule， thats evolved over the decades， and is now part of nasas artemissmoon program it also includes ula， which is the joint venture that we do talk about with bowing that was sort of forced upon both bowing and lockid Martin where they both independently were developing launch capabilities for the us government this is especially Pre Spacex or before Spacex was as powerful as it is today the us needed to contract launch services from someone and so lockied and bowing were both developing them that didnt go terribly well and they ended up asking for Belle out from the government and the government said uh can you to combine and luckie Martin and Boeing came back and said are you kidding me with that guy no these coveries hate each other and so but they agreed to do it because they kind of had to and so you la is sort of this shock on wedding between the two companies which as we talk about on the Spacex episode really open the door for Spacex to commit and compete totally and the reason they didnt go well was because in sort of the Pre Spacex era there are all these companies that wanted to put soften space that all ended up going at a business you think like telegradium a lot of bankrupcies and so Boeing had toolled up this huge factory Lockheed had done this to and so they were left holding the bag and it got really ugly bowing was caught trying to steal proprietary data from lockid Martin ultimately， this jv has gone well ula is going to x their capacity to 25 launches a year， which is way more than they used to do but still way less than Spacex over the next five years， or so with this Vulcan rocket still more expensive than Spacex but you know they started from biggin comments rather than starting from a startup so is just sort of a different disposition joint ventures are not permanent things and these companies kind of cant continue to be in business together so uri is upforsale and itbe very interesting to see if one company or the other ends up buying it， but it is an important part of nasas artemisprogram at others moving forward its also important to Amazon a whole bunch of the kyper launches are happening on ula oh interesting is that because basis doesnt want a lot shotspace x need your company will really like say anything about that but god we something in there ah billionair competition yes， so those are the four segments much like are Sony episode and im pulling for the playbook thing here this is a pretty well diversified conglomerate i mean fighter jets are there bread and butter at 40 percent of overall revenue， but missiles and spaces are each seventeen percent and roderemission systems are twenty 6 percent and all of them are nine to fourteen percent margins， so they all are doubledigit percentage of revenue and doubledigit percentage of profit so congratulations weve got a conglomerate alright， well， lets head into our analysis section and this will be to kind of pull together a lot of the strings that weve mentioned on this episode but qualify， like what are the real takeaways and like lets understand this business and this institution and what it is in our world today to kind of tie together some of the things weve teased at over the course of history here and again fewcovi one we know we did not tell the entire lockid Martin story nor could we to this is not a political or defense podcast you can tell that im a conflicted person on this lets start our analysis section with power so what we do in this section is we analyze what is about a business that enables it to achieve persistent differential returns or to put it another way to be way more profitable than their closescompetitor and do so sustainably and this is adapted from a framework that hamilted helmer created in his book seven powers the seven are counter positioning as a startup versus an encomment scale economies across a broad customerbase， switching costs vs other near competitors network economies process。
power branding and cornered resource i was really smiling is your defining that is a persistent differential returns！
versus their competitors because im not sure that lockied has differential returns versus their competitors i dont know that theres really a market here yeah and power kind of comes only in markets yes！
correct forthis maybe its more useful to talk about the prime contractor industry as a whole versus， any specific player will all the players have the same profit margins to i guess where was going with this is i think there is a cornid resource and process power that the prime contractor industry as a whole has the cornered resources， theyare the ones to get the prime contracts from the government and then the process power， which i think probably is really legitimate we talk to some folks in preparing for this they are incredible systems integrators at what they do what did you say there four thousand or three thousands subcontractors for the F35 something like that its nuts to organistrate that in coordinate that into an airplane that does the things that that airplane does in practice thats hard i canbelieve its not all made by the same company the fuseloushes made by a different company than the wings are you freaking kidding me and that thing works didnt you say the different parts of the futilazer made by different companies yes！
on different continents yeah！
theres definantly process power and that you cant just pick that up out a lucky then go putit somewhere else unexpected to function right yeah！
theres a hundred years of knowhow and fifty years of very well home edways of engaging with the customer here the customer again being the pack on right the customer its like big broader the customer i think youre right that we should think about it as the primes versus everyone else it really hard to become a new prime yep maybe impossible you know palenttier has sorted done it i guess Andrew is kind of doing it， but these i think are still pretty small scale compared to the big prims the fifty billion dollars of spend that the one customer has with the one company yeah！
its really hard to break in and be a prime yeah！
i mean its funny like locked versus nor throughp， theres not counter positioning really， theres not scale economies because， theres one customer to averatize cost across but youactually not doing any fix cost stuff your customers absorbing all the fix costs stuff to switching costs i guess， but every time theres a new program they read it out and the governments typically excited to give it to not the incomment because they actually they want to rotate these programs around so fighter jets are typically not made by the same company to generations in a row although lockid Martin has sort of shown with the F22 and the F35 that they have won that i think youre right on process power broadly， but is like heed martins procesverses， northern groundprocess no branding i dont think matters here really i mean in cost plus contracting youjust actually not willing to pay more to one company than the other so i corded resource no not versus each other yeah right， so there really isnt power yeah within the industry but to the extent that you have already become one of these five， then together the five have power verses new entrance。
which is so funny you do you really i think kind of nailed it at the beginning when you said this isnt a market its not a market and i guess da obviously its not a market because theres only one customer he cant really have a market when theres only one player on one side yeah！
thats all i got for power yeah， we do so as we drift into playbook i think the lens i kind want to take on this since we did so much analysis over the course of the episode is what are the big takeaways like if im really sitting here stewing on all this thinking about like what matters in this episode one of the big ones is that lockid Martin has a dual purpose for existing theres all the normal stakeholders， involve customers， employees， and shareholders that they want to produce value for but theres this second thing where they exist for the good of America and its interests， which causes some interesting second order effects and one being whatstheoptimal number of competitors in the space the government tries to optimize this as a heavily interested party but before 1993， there are way too many competers after nineteen 98 they determined we dont want to have any fewer competers but its sort of odd that there is a force that is not the market that is dictating how this plays out because that force in this case the us government is sort of in charge of all of our wellbeing in a way where they dont trust that the market will lookout for that and when i say that， i mean if you left a free market to play out what would happen is a you sell arms to our enemies， which the government doesnt want be a bunch a companies would put each other at a business and we might lose our industrial base people would start outsourcing to other countries we would potentially lose capability if the government stopped buying it for ten years， but we wanted it ten years later when we got in a war， oh！
this all was happened right the government didnt let lockied go out a business in the 1970 this was right as the cannon satellite project was getting going we could not let laced go out of business because we needed that right。
so our market keys a lot of problems like price serving the best product to customers you know， there are exceptions on all these things， but it doesnt solve for making sure that America stays globally competitive and so the government has to put their hand on the scale and all these different ways in this market for that reason yeah well。
globally competitive isnt just take way to free。
safe and globally dominant people lets put it that way thats probably the right way to put in theres a second thing here， which is we literally fund these companies to keep them alive， so that they keep employees trained should we need the employees trained， which is like something that doesnt really exist in other markets， which also is a huge part of the military side of this complex right of the two million people employed by the military in the United States do we need all two million of them？
today no its to keep people in reserve literally thats not a market driven organization or i think would anybody argument should be right yeah， this gets into sort of the like arguments for and against the military industrial complex generally， so theres this like a keep the industrial base strong its good that we have this big spend on industry because like we need to have lots people employ there and know all the stuff theres the second one， which is like its literally a jobs program where you have congress people as we mentioned earlier voting affirmatively for things because it puts jobs in their state this is kind of the most pernicious argument of any of them for a pro big military industrial complex and in particular in this book that you and i both read prophets of war the book basically just argues that this is all a massive misappropriation of funds and a whole bunch of people acting in their own selfinterest and not for the countries selfinterest it is as far to the side of the scale of like the military industrial complex is bad and evil uh is the prophets of four book right， so this is a excert from that book the irony is that almost any other form of spending from education to healthcare to mastransity to weatherizing buildings even a taxcut creates more jobs than military spending and that just falls on defyers over and over again with these programs of 22 in particular as that bookpoints out this like it creates lots of jobs that argument continues to win the day this nine five thousand people are required to build the F35 its like oh good jobs for Americans and like that is a terrible reason to fund something right its catalyc im thinking about the recent period in tech companies in silicon value that we are mercively exting out of now where it was all about employee？
headcount and capturing engineers and Facebook had godnose have any people working on Oculus and like why you know that was the equivalent of the F35？
yeah， i Google sort of cornring resources on really smart people despite the fact that they were getting any economic output out of them right i mean the biggest argument again states all the way back to 19613 hoursfair well address， he give this sort of legendary military， military industrial complex， speech races in the councils of government， we must guard against the acquisition of unwarranted influence， whether sot or unsought by the military industrial complex。
the potential for the disastrous rise of misplaced power exists and will persist its interesting my two things one i think that was maybe impart from observing what was happening in the sovia union where the military and military spending overran the whole rest of the economy clearly as were talking about healing yeah， i think this is a new ance issue and certainly a lot of degree of nonmarket based dynamics are warranted here but you cant let the military industrial complex get so big it over runs the rest of the academy that would not be good the other thing i was gonna say i think the end of that quoter speechor at least part of it is you know eyes and how are a sort of i think very niyively puts forth the solution is what does he say like an engaged in visualant citizenry you know， yeah， especially this day and age of things are so complex thats kind of not possible you know is the average person really going to dive into the details of how the F35 program works like no right thats not a gettoutcome either if everyones preoccupied in keeping an eye to make sure big complex？
doesnt get too complexy right， yeah， theres another one Ive been thinking about， which is a parallel to our Spacex episode where if you remember on the space episode， we talked about and gosh that was a lifetime ago， three years about how nasa prioritized safety over everything else and so they took that to such an extreme where things could happen on a twentyyear timespan， instead of a fiveyear timespan， and Spacex came in and said what if we do it on a two year time span and we figure out how to be much more iterative in our development and were happy to explode some rockets not with people on them and you sort of take this again much more silicon value approach to rapid iteration testing your own prototypes internally being OK showing off your failures in gathering data from them whereas nasa couldndo enough calculations before it finally was willing to do something to let something go to a launch pad， and that would cause extreme delays massive budget overruns anything end of the day it actually wasnt safer thats the important thing here in a hundred and thirty year whatever， it was spaceshuddle missions there were two that were tragic loss of life calamities and so you look at that you like thats actually not a great safety record so maybe this isnt the right way to do it maybe calculating something to you know 15 significant digits of unlikely to fail is not actually the best outcome and it sort of scenes like the same thing in the military industrial complex， where were willing to sign a contract for airplanes that we get in twenty five years because there are these like big huge productions and its just the opposite of the skunk works way of operating where test your own prototypes do it rapidly start moving up and up and up crash？
some planes in the desert but overall were going to get to the same outcome muchfaster on a much lower budget and maybe with equivalent or better safety a hundred percent well。
i cant think of a better place to talk about and what i think are really like the takeaways for me at least and i hope for many people listening of this episode and its really like the hey day Gloria days whatever you want to call it of Lockheed both with skunkworks and lmsc of how these small skunk works type organizations achieve unbelievable， unfathomable things with a small number of people in an unrealistically tight time frame with very constrained resources， and that mindset is certainly not the only way that you can achieve great things but its a really damgood way to do it and that mindset got injected into silicon valley by these people， by the military and by lockid， and its just so funny that the military industrial complex has now become the opposite of that has become like what youtalking about with nasa again theres many ways to succeed in different situations call for different things but like if you really need to or want to achieve something great bordering on impossible in a tightbordering on unreasonable timeframe kellies fourteen。
laws and LMC7 tenants are pretty damngood way to do it thats so true otherwise you get to this thing that normaugastein said how unbelievably expensive these things get if you do it the nonskong works way and we just move into this larger and larger Mars that were sort of the direction were basically going in and these 25 year programs， he says in the year 2514， the entire defense budget will purchase just one aircraft this aircraft will have to be shared between the airforce and the Navy three and a half days per week except for leap year would it will be made available to them readens for the extra day he really is such a character truly， but the craziest thing is much like more sla he accurately predicted the rate at which aircraft prices would continue to grow starting wayback in nineteen 83 hexlywasntfar off on the F35 on sort of his prediction on how expensive it would be on the costcurve to exactly your point if you continue a current courseon speed， we basically will have only billion dollar airplanes going forward theyll be made by everybody there will be no new entrants innovation will happen very slowly， very slowly when you look at lockied martinas， a business theyve got to do just fine for a long time no doubt about it theyre incredibly protectedinsulated business with an unbelievable wedded to them， customer and the creative destructioncycle will happen on other frontiers yep， there will be some existential need to create something that these companies are bad at creating， and the us government doesnknow how to buy from them and the United States will have to figure it out another way and whether that cyber security or whether thats information warfare whatever this whatever threatens the American way of life i have pretty high confidence the American government will figure out some way to make sure that we prepare for that issue whatever that issue is and it may or may not be from one of these companies and its very likely that the skunk works mentality ends up solving more problems for our country， but probably not from the skunk works division of locket Martin and you know！
i guess what is sort of hardening at least as an American is the capability to do this definitely still excess it just happened with vaccines for the coronavirus totally yeah operation warp speed is a great example of ripped down all the barriers and figure out how to do something even if theres some risk yup， you know what thats good way to put a threat if kind of the back to the lmsc tenant number one， that we talked about so long ago in the story of focus on a threatbased need i maybe want to evolve some of my comments earlier about competition into that competition creates threats its not always competition that leads to a threat human beings and organizations tend to perform at their best in response to threats otherwise how you gonna be motivated to go to unreasonable extremes if youre not facing a threat yeah！
now i like that nuance。
which is kind of a either to this playbook of like i certainly dont want to say artificially manufacturer threats， but if youbuilding a company certainly the success in startup well， you have an implicit existential threat all the time as a startup before you reach cache for profitability， which is like you gotta make payroll， and you gotta like either get profitable or raise another around a funding or youre done yeah！
i think youre right i think were quickly sort of teasing out there sort of like two different things here its lucky Martin exists to ensure the americanis continues as we know it today current coursinspeed as protectedoes it needs to be with the types of protections we need great we know where to get that and i have no doubt that will continue happening and also。
there will be other motivations for people to form tight 念 teams and accomplished great things and like those are going to be for other threats and happened by other groups of people and i want to hear your thoughts on that maybe this is the place to leave it rather than grading this time lets come up with kind of the main takeaway but im curious what you think i like that a lot its probably a good thing that the nature of that motivation and the introduction of those threats to spare human ingineity and creativity has moved for now at least mostly out of the war arena its probably good that its not thread of nuclear war that is motivating people to achieve great things most people yeah！
yeah！
most people at least eh right now mercifully thankfully and that mindset was directly transferred from lockid in the military into Silicon valley thats how Silicon valley operates today and thats what makes it special and it doesnt have to be because of threats of war and its a good thing that its not all right i think thats right place to leave it you wanna do carvouts yeah， lets do it my carvout is a fun one i was reminded of becomes my favorite videogame history podcast series resident arc is covering it as their game right now i think i mightve had this as a carvout a couple years ago the game near autobeta is a super fun game and the series that Resnan Ark is in the middle of is there video gamestorybookclub going through it its for the really fun game to play and was kind of ahead of its time the sort of theme of the game is all about can machines think and feel and what is that look like and like i was like really thoughtprovoking at the time its particularly thoughtprovoking right now in our era of feed open ai and gpt in generative ai and all that。
so its really fun to revisit that along with the create resume are guys right now talking about the teams of that story nice youll have like a whole niche of people theyre listening to your carvouts for video game video game Rex Dollar i have two one is something that didnt quite fit anywhere in this episode but if you love airplanes and you are excited about the SR71， you should Google the SR71 Blackbird Speedcheck story the awesome story that im not going to spoil for you but is a about pilot jox at their finest and a try unfit Blackbird its a joyary it takes like two minutes i think youll like it well also link to it the shownotes the second one i have is very very boring carved out but something i found surprising ego launtools ego is the brand they make effectively the Tesla of Lauren moors and growing up i had like a big gas lawmore and you like poll a core to start it and it was loud and it was smelly and it was dirty in it was like as and these are battery powered laugmoors that are insanely powerful i have a leaf flower also that last like thirty minutes off of just a battery look at you youre just becoming a dad im finding some like very good cathersis in i just throw on the audio book and as iresearching in acquired episode and like go do long work for six hours and i find that to be like greatly gratifying to get away from a screen ive chosen to go the uh higher garders route on this uh you can you also have a A2 year old so yes that takes more of your time well and the nature of a yard in safety！
Cisco is a little different im not trim capable of maintaining my yard given everything thats back there it requires more technical expertise！
more systems integration more systems integration all right listeners thank you so much for joining us if you want to become a lp， we would love to have you helpus pick more episodes like this one in the future acquire datafmslash lp when i get back from a berkture， i think well do a nlp call here in the next month， or so you should totally check out acq to if you like hearing us interview other people， i can assure you the next few interviews are going to be oh， they are going to be great even the ones theyre alive now the one we just did with Jake， the one with ovlock from angelist， the one with David from retool fantastic commoxi with her company smooha i all like really fastening discussions lookup ack you to in any podcast player now that youdone with the episode come discuss it with us acquire data。
fm slash slack wed love to have you and particularly to i think theres a good chance with this episode that will have a lot of new doac 灌 folks who are listening we unexpectedly had that in huge numbers with our lvamach episode allsorts a new people coming in and experience a required and listing to us for the first time if youdoing that now here with this locky episode defining go checkout some of our other episodes on other industries and i just want a second webend， said join the slack and come talk about it with us we love hearing from people in a where obviously not in the defense industry we love hearing from people who are telespect your experiences whats like what we get right what we get wrong and educate all the restimus in the community two yep seriously alright with aluceres Wes time well？
see next time who got the truth is you isnt you who got the truth now 哼。
